UK's 2018 gilt sale draws decent demand

LONDON Feb 3 (Reuters) - Britain's sale of 8-year gilts on Wednesday drew a reasonable response from investors, who put in bids worth almost twice the amount on offer, although it did not match the stellar demand at Tuesday's 2-year gilt sale. Wednesday's sale was the second auction of gilts since the Bank of England exhausted its 200 billion pound asset purchase programme last week and suggests that demand for UK government bonds has held up well, even though the bank has stopped buying.

The Debt Management Office said its offer of 3 billion pounds of 2018 gilts drew bids worth 1.99 times the amount on offer, broadly in line with other recent conventional gilt auctions, but well below the 3.12 cover at Tuesday's offering.

"It's probably not too bad considering this bond was reasonably rich, although it had been cheapening going into the auction, and the fact that the cover was close to two and the yield tail was small, suggests it went OK," said Francis Diamond, strategist at JP Morgan.

"It's nothing spectacular, not as good as yesterday, but reasonable." The central bank is expected to call a halt to its asset purchase programme when its monthly policy meeting concludes on Thursday, and Diamond said the real test of demand could come at next week's auctions. "This bond (2018) is not a regular auction bond and was probably added to the list given the large amount of BoE holdings. It doesn't really tell you anything about post-QE demand. Next week's auction of 2034s will be much more significant in that respect."

For a table of the auction results, click on [ID:nLAC005627]

(Editing by Toby Chopra)