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Britain received a record 37.8 billion pounds ($51 billion) of demand at the launch of a new bond maturing in 2071, showing continued strong investor appetite for British government debt. The UK Debt Management Office said it would issue 6 billion pounds of the new bond, which was priced to yield 1.693 percent, a shade less than the 2068 gilt which it will overtake as the longest-maturity British government bond.
The sale reinforces a picture of generally robust appetite for British government debt, which has shown little sign of slowing since June 2016's Brexit vote. "This confirms my confidence in the strength and efficiency of the gilt market," DMO chief executive Robert Stheeman said after the sale.
Within an hour of books opening for the syndication of the 2071 gilt, which pays a coupon of 1.625 percent, the volume of orders beat the previous 26.4 billion pound record set a year ago at the sale of a new 40-year gilt.
The yield on the 2071 gilt is 0.5 basis points lower than the 2068 gilt, reflecting a price at the top end of the initial guidance range for the syndication, as is normal at gilt sales.
The 6 billion pounds nominal which will be issued is the highest for any gilt syndication since 2010, and contributes 5.8 billion pounds in cash terms to the DMO's 106.0 billion pound gilt issuance target for the 2018/19 financial year.
Ultra-long British government bonds typically draw strong demand from life insurers and pension funds, who use the bonds to match long-term liabilities, and the DMO said around 90 percent of demand on Tuesday came from domestic investors. "The syndication is an opportune time for pension schemes to accelerate or restructure their hedging programs," said Rakesh Girdharlal, a senior portfolio manager at Aviva Investors.
The gilt's coupon matched up well for hedging deferred pension liabilities, he added. More broadly, British government bond prices were weaker on the day, reflecting a negative tone on euro zone debt and a slight knock from British data showing the fastest first-quarter job creation figures since late 2015.
Despite the heavy issuance, ultra-long yields showed the smallest price falls. Fifty-year yields were almost 2 basis points higher on the day, compared with a 4 basis point rise for benchmark 10-year debt. The syndication was led by Barclays, Deutsche Bank, Goldman Sachs International and NatWest Markets, who acted as joint bookrunners.
The DMO said due to the strong demand for the gilt, it was lifting the sum it aimed to raise from conventional gilt syndications this year by 1.0 billion pounds to 10.5 billion pounds. British public sector net borrowing fell last year to its lowest as a share of national income since 2001/02.

Copyright Reuters, 2018

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