May 12, 2020 / 4:02 PM / 20 days ago

UPDATE 1-New UK 10-year bond draws record $100 billion in demand

(Recasts with record volume of orders)

By David Milliken

LONDON, May 12 (Reuters) - Bond investors tried to buy a record 82.6 billion pounds ($101.70 billion) of a new 10-year British government bond offered to the market for the first time on Tuesday, far outstripping demand at any previous British debt sale.

The United Kingdom Debt Management Office (DMO) said it sold 12 billion pounds of the 0.375% October 2030 gilt, part of 225 billion pounds of debt issuance planned between April and July to fund spending to mitigate the impact of COVID-19.

“If the biggest concern for UK policymakers is that the UK needs to rely on the kindness of strangers to fund its debts, then on the face of it, strangers are being incredibly kind right now,” Mike Riddell, a fund manager at Allianz Global Investors, said.

The volume of orders was double the previous record for a British debt syndication, and mirrors increased demand for gilts since the Bank of England announced in March that it was expanding its quantitative easing programme by a record 200 billion pounds.

The DMO said three quarters of the demand came from British investors, mostly pension funds and asset managers, with additional demand from commercial banks and foreign central banks.

The gilt sold with a yield of 0.3539%, 8.5 basis points above the 10-year benchmark gilt, which represented a price at the top end of initial investor guidance.

British 10-year government bond prices rallied after the sale, pushing yields 2 basis points lower on the day - broadly in line with U.S. Treasuries but outperforming German bonds.

“The market reaction to the sale was ... unprecedented and extremely positive,” DMO chief executive Robert Stheeman said. “It has been a historic transaction for the DMO and the gilt market in many respects.”

The syndication was the first time a 10-year gilt had been sold this way. Bank of America, BNP Paribas, Citi, HSBC, Lloyds Bank and RBC acted as joint bookrunners. ($1 = 0.8122 pounds) (Writing by William Schomberg, editing by Andy Bruce)

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