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 will be the last 10Y conventional Gilt of 2017. There is a

wave of FTQ trading sweeping through markets and this was likely responsible for

a poor 10Y Bund auction yesterday. UK Banks have been buying Gilts 5Y and under

this year and selling 15Y+; 10Y Gilt demand is nearly zero (BoE data).

- RV: The spread to Germany is an optically attractive 91bp. The Gilt  2027 ASW

spread is GBP-0.25bp, which is on the cheap side of the recent range but

inconveniently, not positive. Interestingly, the 10Y swap spread has been

correlating closely with the 3m sonia vs 3m libor spread, which briefly inverted

in early September, before correcting after the BOE hiked rates. Perhaps there

will be some buying out of the more fragile corporate bond market The Gilt curve

is quite flat and may limit extension trades.

- HISTORY: By comparison, at the last auction on Oct 19, the DMO sold E2.5bln at

an average yield of 1.317% with cover of 2.15 times and tail of 0.4bp. 

- TIMING: Results are due to be announced around 1035GMT