LONDON (Reuters) - Britain drew solid demand from investors at an auction of 4.5 billion pounds of five-year government bonds on Wednesday, despite the September 2015 gilt looking slightly expensive compared to its peers.
The UK Debt Management Office said it received total bids worth 8.453 billion pounds, giving a bid-to-cover ratio of 1.88. This was below the 2.23 achieved the last time the gilt was sold in April 2009, but the bidding was higher quality with a yield tail of just 0.6 basis points, half that at the previous sale.
“The bond from a relative-value basis didn’t look inspirational — it was relatively expensive on the curve — but demand was decent and the tail was fairly tight,” said Christian Lawrence, strategist at RBC.
“There was probably a lot of demand was from liquidity portfolio managers, looking for anything at the shorter end.”
British financial institutions are having to hold more short-dated liquid assets to meet new regulatory requirements which came in after the financial crisis.
Gilt prices made early gains on Wednesday, in line with Bunds and a rise in Treasuries, but had started to shed these before the auction, a trend which continued afterwards.
At 12:20 British time the September 2015 gilt was yielding 2.930 percent, compared to a highest yield of 2.916 percent offered by the DMO at auction. The 2.75 percent January 2015 gilt offered a yield of 2.789 percent and the 8 percent December 2015 gilt was yielding 2.996 percent.
Reporting by David Milliken; editing by John Stonestreet