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GILT SUMMARY: Having pared around half of weak inflation induced gains just
before midday, Gilts traded sideways in a narrow range in the afternoon,
ignoring more wider moves in German Bunds and US Treasuries. Yield curve has
bull steepened as short-end remains underpinned by weak CPI print.
- 2-yr Gilt yield is -4.4bp at 0.849%, 5-yr -4.3bp at 1.142%, 10-yr -3.0bp at
1.416%, 30-yr -0.7bp at 1.82% and 50-yr -1.2bp at 1.63% according to Tradeweb.
- 2-yr Gilt yield hit low of 0.806% in reaction to UK CPI falling to 2.5% y/y
from 2.7%, while core fell by 0.1% to 2.3% y/y. PPI data was a little more
in-line though still showing input and out prices rising steadily.
- Gilts then pared around half of those gains over next 2-hrs or so, as markets
expect the BoE to remain focused on the continued low unemployment level and
first signs of a rise in wage growth and still hike rates in May.
- 5-yr breakevens have given back around half of its tightening move as well and
is now 2.7bp tighter, while 10's is now down only 0.7bps vs 4bp earlier. Swaps
spreads are circa 1bp wider.
- Tomorrow sees March retail sales and tap of 10-yr Gilt for Stg2.5bln.