"if and when they have capital to be careful about"
With France successfully selling 50 year bonds @2.5%
GK joined the party..
UK sells first tranche of 50-year gilts - FT.com
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Financial Times
May 26, 2005 - UK sells first tranche of 50-year gilts ... The UK government on Thursdaysuccessfully sold £2.5bn of 50-year bonds, the ... The demand, however, was less than the French sale in February of its 50-year bond, which drew more ...
UK sells first tranche of 50-year gilts
By Joanna Chung in London
The UK government on Thursday successfully sold £2.5bn of 50-year bonds, the longest dated bond it has sold in more than four decades, despite disappointing demand.
The daring move by Britain to borrow for such a long maturity, which comes amid a period of historically low interest rates, helps lower the government’s cost of borrowing.
At the same time, there is a rising demand from investors, particularly pension funds and insurers, seeking assets that can better match their ever-lengthening liabilities.
In the run-up to the auction, however, yields have been declining, making the bond more expensive.
Analysts had speculated that some investors, including pension funds, would be deterred from buying what is expected to be the first of several offers of 50-year gilts.
The bond, which will pay a coupon of 4.25 per cent, on Thursday drew bids of 1.6 times the amount on offer, according to the Debt Management Office (DMO), which borrows on behalf of the government. The bond sold at an average yield of 4.21 per cent.
“There had been a risk that the auction would struggle,” said Trevor Welsh, fund manager, Morley Fund Management. “But it went reasonably well.”
The demand, however, was less than the French sale in February of its 50-year bond, which drew more than three time subscribed.
“The cover [for the auction] was a bit disappointing,” said Anthony O’Brien, analyst at Barclays Capital. “It was not really indicative of real strength of the bond. We still think the bond is expensive.”
However, some analysts say that the “tail” or difference between the highest and lowest yields, was just two basis points and indicated a good level of demand.
It was also the lowest yield achieved in any long gilt auction since the DMO was created in 1998 - a further indication that the government was able to borrow at very cheap levels.
But Andrew Roberts, fixed income strategist at Merrill Lynch, said: “The question is has this been taken by asset-liability matching buyers or by ‘the street’? We shall see over coming hours but we suspect the latter.”
The timing of the auction, which comes ahead of about £3.8bn coupon payments in early June, has helped because some 42 per cent of it will likely get re-invested into long-dated gilts.
As the bond will automatically lengthen the maturity mix of gilt indices, many money managers were also under pressure to buy it in order to match those indices.
In afternoon trading in London, prices on the 50-year gilt fell and the yield was 2.3 basis point higher. The yield on the 30-year gilt was 2.7bp higher at 4.328 per cent.
Eurozone government bond yields were largely unchanged after the UK auction. |
