The sale of one of Britain’s longest dated inflation-linked government bonds yesterday drew strong demand — producing the lowest negative real yield on record for a syndicated offering of gilt linkers.
The Debt Management Office also said it would increase the amount of money it seeks to raise via syndications for linkers this financial year by £1bn to £10bn (€13.3bn), following strong demand for the 2058 index-linked gilt.
Investors — 86% of whom were British-based — placed orders totalling £10.9bn, enough to push the yield in real terms below zero to a record low -0.8955%.
Ultra-long gilts typically attract British pension funds and insurers, which need assets to match their very long-term liabilities.
“[The syndication saw] very strong demand. It clearly shows there’s continued underlying demand for longer-dated linkers driven by pension funds,” said Nick Stamenkovic, fixed income strategist at RIA Capital. “This is hardly surprising given the need for hedging in light of ever-increasing pension deficits.”
Proceeds from the re-opening of the gilt were expected to be around £4.6bn, the DMO said. Citi, JPMorgan, Nomura and UBS Investment Bank managed the sale. It was the second time a linker syndication has produced a negative real yield since the DMO began to regularly sell debt by this method in 2009, the other being the launch of the 2058 linker in July last year.
Sovereign borrowers sometimes place bonds via a syndicate of banks as doing so helps them to reach a broader range of investors than through a traditional auction.
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