UPDATE 1-Demand reaches over £14bn for January 2045 Gilt

Tue Jun 24, 2014 5:10am EDT

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By Sarka Halas

LONDON, June 24 (IFR) - Demand for the United Kingdom's first conventional syndicated deal this year has reached over £14bn, which could allow the sovereign to print a deal of more than £4bn.

The Aa1/AAA/AA+ rated issuer began marketing the 3.5% January 22 2045 Gilt at 1bp to 2bp over the 3.25% January 2044 Gilt via leads Barclays, JP Morgan, Lloyds, and RBC Capital Markets. This was revised to 1bp over on the back of the strong demand.

One syndicate official working on the deal placed fair value at 1bp through the January 2044s, adding that the new issue premium at the final guidance level is 2bp.

Analysts said the deal could be as big as £4.25bn, but RBC wrote "there is operational flexibility for this to be altered up or down to a certain extent depending on demand."

Since 2013, conventional and linker syndications have usually been open for only around an hour, with domestic investors dominating the book, in particular pension funds, said BNP Paribas analysts in a research note.

However, a higher margin to Germany could trigger appetite from overseas investors with 30-year Gilt/Bund spreads close to 1.15%, they said, adding that rarer syndications provide a liquidity window for investors and strong demand is anticipated if the yield on offer is close to or above 3.5%.

The new bond is the first syndication for the 2014 to 2015 financial year. A long-dated linker is planned for July.

The United Kingdom was last in the syndicated market in January when it received over £12bn of orders for a tap of its 0.125% 2068 index-linked Gilt. That was the largest ever order book for a Gilt linker syndication.

Pricing of the new bond is expected to take place later Tuesday. (Reporting by Sarka Halas, Editing by Helene Durand, Julian Baker)

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