LONDON: Britain had the weakest demand for its government debt in nearly four years at an auction of its 2068 bond on Tuesday, another sign that investors may be looking elsewhere for higher returns as the economy picks up.
Investors bid for 1.25 times the 1.5 billion pounds ($2.26 billion) of gilts maturing in July 2068 on offer from the UK Debt Management Office -- the least since May 2011.
It followed a sale of five-year gilts last week that also saw weak appetite from investors.
"I'm surprised because pension funds over the last few years have been hoovering up longer-dated auctions," said Nick Stamenkovic, strategist at RIA Capital.
The yield on the 2068 gilt -- the longest-dated government bond -- has risen almost 60 basis points since the start of February, but it is still lower than at any of the bond's previous three sales including its launch in June 2013, all of which were via syndication.
Tuesday marked its first sale via an auction. "Maybe investors are considering that some of the low yields are just not attractive at this juncture, so they're clearly demanding a concession (at auction)," said Stamenkovic.
With little in the way of domestic economic data, gilt prices in general followed euro zone debt prices higher after the European Central Bank's 1 trillion-euro asset purchase stimulus got underway.
But the weak auction meant ultra-long-dated gilts underperformed.
Whereas the 10-year benchmark gilt yield was down around 8 basis points at 1.86 percent as of 1133 GMT, 30-year gilt yields had fallen only 2.5 basis points, to 2.67 percent.
"Certainly today's 2068 auction and last week's five-year auction suggest that sentiment in gilts could well be turning more bearish," said Stamenkovic.
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