LONDON: Britain's sale of an ultra-long bond drew the second-highest demand ever for a launch via syndication thanks to interest from pension funds, despite financial market volatility ahead of a referendum on the country's membership of the European Union.
Britain's Debt Management Office sold 4.75 billion pounds ($6.95 billion) of the 2.5 percent July 2065 bond at an average yield of 2.2905 percent.
The sale attracted orders worth 21.3 billion pounds and will increase the total amount of the bond in issue to 9.5 billion pounds, following record demand of 21.9 billion pounds at the bond's launch in October 2015.
Thirty-year gilt yields rose to a three-month high of 2.476 percent as investors absorbed the issue, leading to price falls across maturities in the gilt market, which was also under pressure from falls in the price of German debt.
"There remains significant interest in acquiring ultra-long gilts in the context of ongoing demand from the pensions industry to hedge liabilities," said Jo Whelan, deputy head of the DMO.
Whelan said the sale result illustrated the underlying strength of the gilt market, with demand exceeding 21 billion pounds in just one hour.
"While international capital markets have been somewhat volatile in the recent past, our syndicated offering was absorbed smoothly and efficiently by the gilt market."
Britain votes on whether to exit the EU on June 23 - a possibility that has unsettled financial markets in recent months and which many economists see dealing a hit to the economy, at least in the short-term.
The DMO has curbed the size of bond auctions this year to encourage stronger bidding from banks, but has kept up the large size of syndications, which do not rely on dealers buying large sums of gilts to temporarily hold on their own account.
At about 1530 GMT 30-year yields were up 6.6 basis points at 2.47 percent, 10-year yields were 5.5 bps higher at 1.67 percent and five-year yields rose 5.6 bps to 1.03 percent.
The move mirrored losses in US and German bond markets, with supply on both sides of the Atlantic helping to lift benchmark US and German yields to or close to five-week highs.
Marc Ostwald, a fixed income strategist at ADM Investor Services, said the results were particularly good given the various risk events this week, including gross domestic product releases from Britain and the United States and central bank decisions by the US Federal Reserve and the Bank of Japan.
"I would say they have managed to sell this at a very good level," he said.
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