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UK draws record demand at sale of 40-year government bond
May 16, 2017 / 2:41 PM / 7 months ago

UK draws record demand at sale of 40-year government bond

    LONDON, May 16 (Reuters) - Britain drew record demand from
investors for a long-dated bond when it sold a 40-year gilt on
Tuesday in its first syndicated bond sale for the 2017/18
financial year.
    Orders totalled 26.4 billion pounds ($34 billion) and the
country's debt office sold a nominal 5 billion pounds of the
gilt which matures in 2057 and carries a coupon of 1.75 percent
    "There was clearly huge demand for the bond," Vatsala Datta,
a fixed income strategist at Royal Bank of Canada, said.
    The orders represented the highest level of demand seen in a
syndicated sale of long-dated gilts since the UK Debt Management
Office (DMO) started such sales began during the global
financial crisis.
    "On a day of plentiful international bond issuance, it was
gratifying that this ran extremely smoothly," said Jo Whelan,
the DMO's deputy chief executive, adding that the sale would
increase the volume of the gilt in issue to 9.5 billion pounds.
    France received more than 30 billion euros ($33.2 billion)of
orders for a new 30-year bond on Tuesday, highlighting strong
demand at a sale seen as the first big test of sentiment
following the French presidential election.             
    Yields on long-dated British government bonds fell in
response to the sale, which underscored the strength of demand
among institutional investors such as pension funds for assets
paying steady returns over the coming decades, Datta said.
    Domestic investors accounted for 87 percent of demand for
the gilt, in line with the standard strong home bias in British
government bond syndications.
    The 2057 gilt sold at a yield of 1.690 percent, equivalent
to a premium of 2.5 basis points to the January 2060 gilt
           . As usual at British gilt syndications, this was at
the tight end of initial guidance, reflectign strong demand.
    Forty-year UK yields are down from seven-month highs of just
below 2 percent seen in late January, but are well off record
lows of barely 1 percent plumbed in August, when concerns about
a post Brexit vote slowdown were peaking.
    Datta said she had expected the Debt Management Office to
sell 4.5 billion pounds of the 2057 gilts on offer on Tuesday
but probably raised the size of the sale to meet demand.
    The DMO said that in response to the strong demand, it had
increased the portion of its 2017/18 issuance programme devoted
to long-dated gilts by 500 million pounds to 9.5 billion pounds.
    Bank of America Merrill Lynch, Barclays, Deutsche Bank and
Royal Bank of Canada acted as joint bookrunners for the

    June long gilt future          127.64 (-0.17)
    June 2017 short sterling         99.68 (unch.)
    Dec 2017 short sterling         99.62 (unch.)
    10-year gilt yield             1.14 percent (unch.)
-------------------KEY MARKET DATA---------------------------

Long Gilt futures            Gilt benchmark chain           
Short Stg futures            Cash market quotes             
Deposit rates                Sterling cross rates         
UK debt speedguide          
-------------------KEY MARKET REPORTS--------------------------
Gilts                       Sterling                  
Euro Debt                   Dollar                    
U.S. Treasuries             Debt reports             
--------------------GILT STRIPS DATA -------------------------
Gilt strips data                 All gilt strips                
Gilt strips IO                   Gilt strips PO                 

($1 = 0.7754 pounds)
($1 = 0.9035 euros)

 (Reporting by William Schomberg, editing by David Milliken)

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