LONDON (Reuters) - Britain’s debt office chief said on Tuesday the country may issue more ultra-long-dated bonds this year, following robust demand just a month ago for its sale of a new 50-year bond.
Britain saw a record 37.8 billion pounds ($51 billion) of demand at the introduction of a new bond maturing in 2071 last month, showing continued strong investor appetite for British government debt.
“Having just issued (the 2071 bond) we are not going to leave it stranded there,” Robert Stheeman, the chief executive of the UK Debt Management Office, told Reuters on the sidelines of a conference in London. “We will certainly be looking to build up there.”
The DMO has said it aims to raise at least £4.7 billion in cash terms through a single long-dated bond syndication in the second half of its financial year, which runs until April 2019.
Ultra-long British government bonds typically draw strong demand from life insurers and pension funds, who use the securities to match their long-term liabilities.
Governments globally have been issuing longer-dated bonds to lock in historically low borrowing costs. Investors are seeking out longer maturities for higher returns amid very low interest rates.
Speaking at the annual Euromoney global borrowers conference, Stheeman said post-crisis regulation was probably squeezing banks’ ability to serve bond markets, after several firms quit as primary dealers of British government debt.
Scotiabank (BNS.TO) last month became the latest firm to resign as a primary dealer — essentially a bank that buys bonds directly from the government and sells them on, helping to create a liquid market.
Credit Suisse and Societe Generale have also quit in recent years as primary gilt dealers.
Tougher regulation since the global financial crisis has made primary dealing across Europe less profitable because banks must hold extra capital against possible losses.
Stheeman said regulators may be inadvertently concentrating power in the hands of bigger firms, leaving issuers such as Britain depending on fewer players for liquidity.
“If we are worried about the cumulative effect of regulation, it will squeeze the smaller players,” he told the conference. “Are regulators really comfortable with the notion that they are squeezing out smaller players?”
Stheeman also told Reuters that regulation may be causing a “structural decline” in the diversity of banks wanting to take on the primary dealer role, but he added it was not confined to gilt markets.
He also said that so far the gilt market had not been affected by Brexit and he did not expect an impact until Britain actually left the European Union.
Reporting by Tommy Wilkes; writing by Dhara Ranasinghe; editing by Larry King