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

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

benchmark 1.25% July 2027 Gilt Tuesday for Stg2.25bln in size. 

- BACKGROUND: Bear in mind that the DMO also sells Stg2.25bln of the 30Y Gilt on

Thursday. plus, today is fairly heavy in terms of EGB issuance. However, there

is no other 10Y benchmark tap in the first quarter calendar. This may be the

last re-opening of this issue.

- RV: The spread to Germany has dropped significantly over the course of

December to 80bp, down from a peak of 97bp just one month ago. We would say that

much of the compression was due to German debt weakness. Outright, the yield is

1.236% and very close to the one year average of 1.204%. There is no obvious

trade versus swaps and the spread to the Gilt futures' CTD, the Gilt 4.25%

Dec-27 is a very lean 3.7bp and the 5-10Y spread is quite flat, so limiting

extension trades.

- HISTORY: By comparison, at the last auction on Nov 13, the DMO sold E2.7bln at

an average yield of 1.34% with cover of 2.32 times and tail of 0.2bp. 

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