Short-end of Gilts have rallied........>

GILT SUMMARY: Short-end of Gilts have rallied strongly and outperformed the

long-end, and in turn bull steepened the yield curve in wake of softer than

expected UK core CPI. Comments from BoE Silvana Tenreyro last night and reports

of a tougher stance from EU on transitional deal, also underpinning Gilts.

- 2-yr Gilt yield -1.8bp at 0.577%, 5-yr -2.0bp at 0.835%, 10-yr -1.8bp at

1.305%, 30-yr -0.4bp at 1.814% & 50-yr unch at 1.600%.

- Gilts opened modestly higher supported by BoE Tenreyro comments that

re-enforced central bank view interest rates would rise a couple more times in

3-years, but this would slow if productivity increased faster than Bank expects.

- A EU draft report on Brexit transitional deal showing a tough stance also

raised concerns of difficult negotiations ahead.

- The main highlight though was UK CPI data that showed overall inflation

dipping to 3.0% y/y from 3.1% y/y as expected, but core falling to 2.5% from

2.7%. This initiated decent run of call buying in Sstg options and outright

buying and curve flattening trades in the strip.

- 5-yr breakevens are 2.8bp wider at 3% as RPI rose more than expected.