###POV: CAN 2s/10s YEILD SPREAD CONTINUE TO...>

GILTS: ###POV: CAN 2s/10s YEILD SPREAD CONTINUE TO WIDEN?.

- 2s/10s spread has widened 10bp since Jan 16 to 81.5bps and is the highest

since Nov 30, 2017 and close to 100DMA of 81.6bps. The move is seen as a little

excessive and could be in-line for a short-term correction. The last time the

spread widened by 10bps was between Dec 19 to Dec 22 last year and the spread

gradually narrowed by 8/9bps over the next 8 days or so.

- The move seems to be in reaction to there being no negative news on Brexit and

the hope that a transitional deal will be agreed by the end of March. While the

rise in Sterling against both the US Dollar and Euro is reducing the risk

inflation will remain elevated and therefore keeping 2-yr yields slightly

anchored for now.

- However, with upbeat UK labour market survey released today, a risk that Q4

GDP could surprise to the upside when the flash estimate is released on Friday

and Jan PMIs released next week there could be a temporary higher upward

pressure on short-end yields before BoE meeting on Feb 8. Also in the 2-weeks

prior to the last 2 BoE MPC meetings 2s/10s curve flattened by 14bp and 7bp.