Gilts trading higher having reversed...>

GILT SUMMARY: Gilts trading higher having reversed earlier weakness in wake of

lower than expected UK service PMI and larger than expected fall in Eurozone

core inflation. A disappointing 5-yr Gilt auction has capped the move higher

though and the yield curve is pivoting around the 10-yr sector.

- 2-yr gilt yield is -2.1bp at 0.80%, 5-yr -2.4bp at 1.131%, 10-yr -2.2bp at

1.435%, 30-yr -1.7bp at 1.854% and 50-yr -2bp at 1.656% according to Tradeweb.

- Gilts faded soft opening move following UK service PMI which rose to 52.8 in

April from a weather induced 52.4 in March, but was below consensus for a rise

to 53.5 with IHS/Markit saying subdued new business growth persisted in April.

- Eurozone core inflation dropping to 0.7% y/y in Apr from 1.0% y/y in Mar then

helped push Gilts to session highs just before 5-yr Gilt re-opening auction.

- The near 3bp rally in the 5-yr did not help the auction with it coming in with

a tail of 0.5bps vs 0.1bp previously and this halted the rise in Gilts overall.

- Short Sterling strip is between 2 and 3 ticks higher, while breakevens are

touch tighter and swap spreads slightly wider apart from the 2-yr which is

-1.4bp