U.K. May Revive Long Gilt First Used in South Sea Bubble

The U.K. Debt Management Office will consult investors on whether it should issue bonds with maturities longer than 50 years and so-called perpetual, or undated debt, the agency’s chief said.

“We haven’t fixed the date, but it’s likely to be towards the end of the first quarter of the fiscal year,” DMO Chief Executive Officer Robert Stheeman said in Frankfurt. “We will have to weigh long-term costs and the risks of issuing such securities. I think there will be demand for it, but the key question is at what prices?”

Chancellor of the Exchequer George Osborne wants to lock in the benefits of near record-low borrowing costs for longer to help reduce a budget deficit running at more than 8 percent of gross domestic product. The U.K. will issue 167.7 billion pounds ($265 billion) of gilts in the next 12 months starting from April, down from 179.4 billion pounds for this fiscal year.

The consultation period may take 12 weeks, Stheeman said. The average maturity of U.K. debt is close to 14.5 years, he said.

“We will seek the market view on this, and our focus will be on long-term cost benefit to the country,” he said. “We also have to look at what it actually means having so much long- term debt in a portfolio.”

Gilts returned 14 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Federation of Financial Analysts Societies. The 10-year gilt yield fell to a record low 1.92 percent Jan. 18 as investors sought refuge from the euro-area debt crisis.

To contact the reporters on this story: Anchalee Worrachate in Frankfurt at aworrachate@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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