(Bloomberg) — The UK is set to sell a record £13 billion ($16 billion) of 10-year bonds after attracting the highest-ever demand for such securities from investors keen to lock-in yields near multi-decade highs.
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The government received more than £140 billion of orders for the new debt, which is being sold via banks in a syndication, according to people familiar with the matter, who asked not to be identified as the matter is private.
The sale smashes a previous record for gilt demand set less than a month ago, and signals investor appetite to capture yields at current levels as the Bank on England continues to lower interest rates. It’s also a sign that traders are looking beyond worries about fiscal probity and excess supply that dogged the UK government and bond market at the start of the year, and sent yields surging.
“Debt sustainability worries have decreased a bit and the dovish vote split has likely helped sentiment,” said Evelyne Gomez-Liechti, strategist at Mizuho International, referring to the BOE decision last week.
Pricing of the sale was tightened to 5.5 basis points over comparable bonds, from a range of 5.5 to 6 basis points previously, according to people familiar with the matter.
Debt syndications are typically more expensive than auctions, but they allow governments to raise large sums quickly while diversifying their investor base.
UK 10-year yields rose to almost 5% last month, the highest since 2008 after investors balked at the prospect of absorbing huge bond sales announced by the Chancellor of the Exchequer Rachel Reeves in her October budget to fund the government’s spending plans.
Yields have since retreated and were three basis points higher at 4.48% at 11:08 a.m. in London.
The larger-than-expected sale this week has material implications for gilt issuance for the rest of the financial year, which runs until April. The two remaining scheduled medium-maturity auctions will likely be around £1 billion smaller than their recent averages, according to Megum Muhic, a strategist at RBC.
“This all adds to the notion that today’s transaction marks the peak in gilt supply for the quarter,” Muhic said. “The gilt supply schedule is set to be supportive of gilt cross-market outperformance through to the end of March.”
