LONDON: The United Kingdom sold a record £13bil (US$16.2bil) of 10-year bonds after attracting the highest-ever demand for such securities from investors keen to lock in yields near multi-decade highs.
The government received £142bil of orders for the new debt, sold via banks in a syndication, according to the country’s Debt Management Office (DMO).
The rush came as pricing was set at 5.5 basis points over comparable bonds.
The gilt “received a very strong reception from the market”, Jessica Pulay, the DMO’s chief executive, said in a written statement.
She added that this allowed it to increase the size of the issuance relative to initial planning assumptions.
The sale smashes a previous all-time high for gilt demand set just last month, while other European sovereign borrowers have also been setting records in recent weeks.
That suggests investors are keen to capitalise on the typically higher yields available from new issues rather than existing bonds.
It also reflects appetite to capture yields at current levels given the Bank of England (BoE) is continuing to lower interest rates.
Yields are still historically elevated after surging to the highest since 2008 in January, when the bond market was dogged by worries about financial probity and excess supply.
“Debt sustainability worries have decreased a bit and the dovish vote split has likely helped sentiment,” said Evelyne Gomez-Liechti, a strategist at Mizuho International, referring to the BoE decision to cut interest rates last week.
Debt syndications are typically more expensive than auctions, but they allow governments to raise large sums quickly while diversifying their investor base.
Issuance volume in Europe’s publicly syndicated debt market set a new record on Tuesday, with the bulk of that from sovereigns.
UK 10-year yields rose to almost 5% last month after investors balked at the prospect of absorbing huge bond sales announced by the Chancellor of the Exchequer Rachel Reeves in her October budget to fund the government’s spending plans. Yields have since retreated, trading around 4.5% on Tuesday.
The drop in yields has made gilts less attractive to some investors.
BlackRock Inc has turned neutral on the securities, with researchers at the world’s largest asset manager saying it’s a good time to exit the debt after the recent rally.
The sale this week was larger than forecast by market participants, and that has implications for gilt issuance for the rest of the financial year, which runs until April.
The two remaining scheduled medium-maturity auctions will likely be about £1bil smaller than their recent averages, according to Megum Muhic, a strategist at RBC.
“This all adds to the notion that today’s transaction marks the peak in gilt supply for the quarter,” Muhic said.
“The gilt supply schedule is set to be supportive of gilt cross-market outperformance through to the end of March.” — Bloomberg
