U.K.’s Longest-Maturity Bond Offer Has Buyers Waiting to Pounce
(Bloomberg) -- U.K. bond investors eager for the government to sell more of its longest-dated debt appear to have gotten their way.
A bond auction on Tuesday will include a 1 billion-pound ($1.37 billion) offering of gilts maturing in 2071 with more scheduled for sale in June. Minutes of a conference call with the Debt Management Office last month revealed investors asked for more of the bonds because there isn’t enough to go around. It also cited dealers reporting strong demand for the longest-dated gilts.
The success of Britain’s vaccination roll-out and plans to gradually reopen the economy have pressured gilts, lifting 50-year yields to their highest since 2019 last month. That’s now unleashing appetite among money managers to pile back in looking for income-bearing assets to match liabilities .
The same dealers have also been reluctant to sell their inventory of long-maturity debt this year back to the Bank of England as part of its quantitative easing program in another sign of anticipated demand. This suggests they don’t want to be caught short of any bonds should investors want to buy from them.
Also pushing the strong demand theme, oversubscription rates for bonds maturing in 50 years have been the highest on record since the end of last year.
“With the U.K. market having most aggressively priced the re-opening story in Europe, even a mild re-assessment of the re-opening and vaccination story, should see gilts recapture some lost ground,” said Megan Muhic, a strategist at RBC Europe Limited.
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- Euro area bond issuance from Germany, Italy and the Netherlands is expected to total 12 billion euros next week according to Commerzbank AG; Danske Bank A/S flags that Ireland could sell a new 20-year bond through banks; Italy, Finland and Portugal pay redemptions of about 29 billion euros and coupons of over 2 billion euros
- In the U.K., the Debt Management Office will sell 1 billion pounds of its longest conventional gilt which matures in 2071 and 600 million pounds of a 30-year inflation-linked bond; the Bank of England will buy back 4.4 billion pounds of debt in three operations
- Data for the coming week in the euro area and Germany is thin and mostly backward-looking, with the exception of the ZEW survey numbers for April on Tuesday
- U.K. data is also slim with February GDP due on Tuesday
- ECB policy maker speeches are scheduled from Isabel Schnabel, Fabio Panetta and Luis de Guindos all on Wednesday before a self-imposed quiet period kicks in ahead of the following week’s monetary policy decision
- BOE policy maker Silvana Tenreyro speaks on Monday followed by Jonathan Haskel on Wednesday and Jonathan Cunliffe on Friday
- DBRS Ltd. reviews France on Friday
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