###POV: CAN UK 5S/30S GILT YIELD CURVE........>

GILTS: ###POV: CAN UK 5S/30S GILT YIELD CURVE CONTINUE TO FLATTEN IN SHORT-TERM?

- UK 5s/30s yield spread is coming close to 100bps and the lowest level since

December 2008, having tightened by nearly 30bps since the beginning of August.

This compares to US 5s/30s curve tightening by over 50bps in the same period.

- With Brexit negotiations moving onto the second phase of a transition

agreement and then possibly onto future trade talks in Q1 2018, the good news is

likely to mean better news for the UK economy (no near-term cliff edge,

unemployment remains low, lower inflation due to rise in pound leading to higher

spending power), which could lead to the Bank of England hiking rates at a

quicker pace than currently priced at once every 12-months. Coupled together

with no 30-yr Gilt supply until March but a 5-yr re-opening auction in Jan,

there are no clear indications/factors for the curve to re-steepen. 

- Risks are seen on government missing fiscal targets (unlikely if confidence

picks up) and/or political instability if Brexit talks turn sour in next

3-months reducing chance of BoE hiking rates further.