May 14, 2019 / 3:06 PM / 2 months ago

UPDATE 1-Britain sees strongest demand in a year for new 35-year bond

(Adds details, analyst and DMO comment)

By David Milliken

LONDON, May 14 (Reuters) - Britain received the strongest demand in a year for its government debt, when it sold 4.75 billion pounds ($6.13 billion) of a new 35-year government bond, underscoring how little the approach of Brexit has unsettled investors.

Investors placed orders totalling 32.0 billion pounds for the 1.625% 2054 gilt at a syndication, the most appetite since the launch of a new 2071 bond in May 2018, which drew a record 37.8 billion pounds in orders.

Britain’s delayed departure from the European Union has had little effect on financial markets’ appetite for its debt, and longer-dated gilts generally get strong demand from domestic investors, who accounted for 86 percent of buyers on Tuesday.

“This transaction demonstrates the high and ongoing level of support for our issuance,” the chief executive of the United Kingdom Debt Management Office (DMO), Robert Stheeman, said.

He told lawmakers last week that the gilt market had been “uncannily quiet” in response to Brexit headlines.

Syndications typically attract big investment funds, who find them the cheapest way to buy less liquid bonds in bulk, ADM Investor Services global strategist Marc Ostwald said.

“Demand is always strong. There’s never any question,” Ostwald said.

As at gilt auctions, investors placed orders several times higher than the true amount they wanted to ensure they got the volume of debt they required.

The bond sold at the top end of price guidance, as usual at gilt syndications, and was priced to yield 1.6025%, 0.25 basis points less than the yield on the 2052 gilt that served as a benchmark.

British government bond prices were up slightly on the day, in line with German government debt, and longer-dated gilts outperformed slightly after the syndication, with 30-year yields down 1 basis point on the day at 1.650%.

Tuesday’s sale is Britain’s first of five syndications in the 2019/20 financial year.

Citi, HSBC, NatWest Markets and Santander acted as joint bookrunners on the deal.

Due to strong demand, the DMO said it was raising its target for syndicated issuance of long-dated conventional gilts to 13.4 billion pounds from 13.0 billion pounds.

The DMO aims to raise a total 117.8 billion pounds from gilt sales in 2019/20 to fund new government borrowing and refinance existing debt. ($1 = 0.7744 pounds) (Reporting by David Milliken, editing by Ed Osmond)

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