###POV: CAN AGREEMENT ON TAKING BEXIT TALKS...>

GILTS: ###POV: CAN AGREEMENT ON TAKING BEXIT TALKS INTO PHASE 2 EXTEND

FLATTENING OF GILT CURVE?

- 2-yr/30-yr extended its flattening move in November (144bps to 130bps), helped

by the first BoE rate hike in over 10-yrs and expectations of Brexit

negotiations moving onto the next stage of talks.

- The agreement on moving talks forward though is not likely to give markets the

certainty they need as the overall deal will not be signed until everything has

been agreed which could be done at the last minute.

- Also, the UK government is keeping quiet at the moment maybe making sure

wording of agreement avoids not just a split between the Tory government and the

DUP party which is propping it up, but also of the Union with at least Scotland

looking very closing on what has been agreed on regulatory alignment. While rise

in UK sterling could actually reduce the pressure on imported inflation.

- There is also a 30-yr Gilt re-opening auction for Stg2.25bln on Thursday and

with the yield on the 2047 Gilt haven fallen from 1.915% to 1.852% since

Thursday morning, there might need to be some concession built in.