By David Milliken
LONDON (Reuters) – Britain received a record 46.4 billion pounds ($57.9 billion) in demand from investors at the launch of a new inflation-linked government bond which will mature in March 2045, the United Kingdom Debt Management Office said on Wednesday.
However the strong demand came at a price, with the 4.5 billion pounds of new gilts paying investors a return of 0.6543% on top of retail price inflation – the greatest real yield for any index-linked gilt sold via syndication since May 2011.
The sale confirms the end of more than a decade when the British government was effectively paid by investors to borrow money from them – a situation that has reversed sharply as the Bank of England and other central banks have raised interest rates to tame double-digit inflation.
At the last syndication of an index-linked gilt in November – not long after financial market turmoil spurred by former prime minister Liz Truss’s mini-budget – investors still accepted a yield of 0.39 percentage points less than inflation on 1.5 billion pounds of 50-year index-linked bonds.
The DMO said domestic investors accounted for 93% of the allocations of the bond. The gilt paid a yield 3.75 basis points above that of the benchmark 2044 index-linked gilt, representing a price at the top end of initial guidance, as is usual for British government bond syndications.
“We are grateful for the ongoing commitment of our investors to the gilt market. This was underlined by the detailed and informative feedback, and the quality of the order book received today,” DMO chief executive Robert Stheeman said.
The volume of orders is the highest for any index-linked bond issued via syndication by the DMO, although a conventional gilt syndication of green gilts in 2021 had order volumes in excess of 100 billion pounds.
The DMO has sold 21.9 billion pounds of gilts out of a target of 237.8 billion pounds for the financial year which started in April. The DMO’s next syndication is for a 40-year conventional gilt in the week starting May 15.
($1 = 0.8013 pounds)
(Reporting by David Milliken; Editing by William Schomberg and Andy Bruce)
