LONDON: Britain sold 1.5 billion pounds ($1.78 billion) of a 50-year index-linked bond on Tuesday, after receiving more than 16.8 billion pounds in orders for the gilt which has a negative inflation-adjusted return.
The March 2073 0.125% index-linked gilt - Britain’s longest-dated such bond - was priced at the top end of initial guidance, as is standard at British government bond syndications.
The 2073 gilt was priced to pay investors a yield 20 basis points less than the March 2068 gilt used as a benchmark, giving a real, inflation-adjusted yield of -0.3877%, the United Kingdom Debt Management Office (DMO) said.
Prices for long-dated index-linked gilts fell sharply after the syndication, pushing the yield on the 2073 linker up by around 14 basis points on the day, compared with a 3 basis point rise for the conventional 30-year gilt
When the 2073 gilt was last sold via syndication in April, investors received a real yield of -1.6451% on the 1.8 billion pounds of debt issued.
Bond prices have tumbled since then, pushing up yields, but investors will still get a return below the rate of inflation if they hold the bond through to maturity.
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Inflation will need to average above 3.2% over the life of the bond for investors to be better off with the index-linked gilt than its conventional equivalent.
Index-linked gilts were among the assets hardest hit by the sell-off which followed then-finance minister Kwasi Kwarteng’s Sept. 23 mini-budget.
The Bank of England bought 7 billion pounds of index-linked gilts in the aftermath in an unprecedented intervention to stabilise the market.
Conditions have calmed since, and the BoE now plans to offer these bonds back to the market, starting next week.
Last week, the DMO revised down its gilt issuance plans for the current financial year by a greater-than-expected 24 billion pounds to 169.5 billion pounds, following budget plans from new finance minister Jeremy Hunt.
However, the DMO expects combined issuance of gilts and Treasury bills next year to soar to 305 billion pounds, 113 billion more than it had predicted in March.
Energy subsidies to households and businesses, rising borrowing costs and an economy that has slipped into recession have all pushed up the British government’s financing needs.
Deutsche Bank, Goldman Sachs, J.P. Morgan and Nomura acted as joint leads on Tuesday’s transaction.