November 8, 2017 / 4:40 PM / a year ago

Business as usual for UK index-linked Gilt

LONDON, Nov 8 (IFR) - It was business as usual for the United Kingdom in its first syndicated trade following Moody’s downgrade of the sovereign’s rating to Aa2 in September, as investors clamoured to get a piece of the 31-year linker.

The UK’s £3bn 0.125% 2048 index-linked Treasury Gilt drew the DMO’s biggest order book ever, totalling £25bn, including £5.15bn of joint lead manager interest.

“We received record interest from investors comprising 144 separate orders, and we also saw the largest book of any syndication in cash terms,” said Sir Robert Stheeman, chief executive of the DMO.

Leads BNP Paribas, Goldman Sachs, Morgan Stanley and UBS priced the issue at £165.868 per £100 nominal, equating to a gross real redemption yield of -1.541%.

“They typically do long maturities so they remain liquid and can keep tapping. They speak a lot to investors for feedback,” said a lead.

He noted that the transaction came very close to fair value.

“There was very good demand. They needed some fresh liquidity on that part of the curve,” said another lead.

A banker away from the deal said the transaction was popular with a captive investor base. The majority - 96% - went to domestic investors.

“In the UK there is a big market of pension funds with fairly high needs for inflation-linked products,” he said.

The trade represented the fourth transaction of the DMO’s 2017-18 syndication programme, which is scheduled to raise a minimum of £22.8bn, of which £10.3bn will come from two long conventional Gilt transactions and £12.5bn from three linkers.

“I greatly welcome the support we have seen from all market participants. I look forward to this continuing across the whole of our Gilt sales programme for the rest of this financial year, including at the index-linked syndication planned for the fourth quarter of 2017-18,” said Stheeman.

The final syndication for the financial year is scheduled to take place in January-March 2018. (Reporting by Melissa Song Loong; editing by Alex Chambers, Philip Wright)

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