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New UK 40-year inflation-proof bond sells at record-low yield via syndication
November 29, 2016 / 2:30 PM / 10 months ago

New UK 40-year inflation-proof bond sells at record-low yield via syndication

LONDON, Nov 29 (Reuters) - Britain launched a new 40-year index-linked government bond offering the lowest ever inflation-adjusted return for a gilt sold via a syndicate of banks, the UK Debt Management Office said on Tuesday.

Reflecting strong demand among investors for inflation protection after June’s decision by voters to leave the European Union, Britain sold 2.25 billion pounds ($2.8 billion) of the 0.125 percent index-linked gilt maturing in 2056 at a real yield of -1.466 percent, the DMO said.

The previous gilt to hold this record was the 2065 index-linked gilt sold via syndication in July, which offered a real yield of -1.325 percent, though shorter-dated linkers sold at auction since then have paid even lower returns to investors.

The sale attracted orders worth more than 11.5 billion pounds, banks involved with the deal said.

The bond sold at a yield 2 basis points higher than that of the 0.125 percent 2058 index-linked gilt, implying a price at the high end of the initial 2.0-2.75 basis point guidance, as is usual with gilt syndications.

Prices on British long-dated index-linked debt were down slightly on Tuesday, compared to flat prices for conventional debt.

The 2058 index-linked gilt prices in an average rate of retail price inflation of 3.40 percent for the next 40 years - lower than in recent days but still close to its highest level since the bond’s launch in July 2014.

Reuters data shows break-even inflation rates for benchmark 30-year index-linked gilts reached their highest in nearly three years earlier this month.

Bank of America/Merrill Lynch, Deutsche Bank, Morgan Stanley and Scotiabank acted as bookrunners for the sale. ($1 = 0.8019 pounds) (Reporting by William Schomberg, editing by David Milliken)

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