The UK Debt Management.........>

GILT AUCTION PREVIEW: The UK Debt Management Office (DMO) re-opens the 10-year

benchmark 1.25% July 2027 Gilt Thursday for Stg2.5bln in size. 

- BACKGROUND: This is a fairly plain vanilla size and maturity. What is less

normal is that the threat of a BoE rate hike has allowed Gilt market sentiment

to swing around considerably. There are no redemption or coupon payments to

assist and there is the independence threat from Canvey Island (not quite

Catalonia).

- RV: The spread to Germany is an optically attractive 92bp. perhaps more

interesting is the spread to swaps because the ASW has crept into positive

territory. Interestingly, the 10Y swap spread has correlated quite nicely with

the 3m sonia vs 3m libor spread, which inverted (sonia above libor) recently.

This is not a situation that should persist.

- HISTORY: By comparison, at the last auction on Sep 13, the DMO sold E2.5bln at

an average yield of 1.167% with cover of 2.25 times and tail of 0.2bp. 

- TIMING: Results are due to be announced around 0935GMT