Investors Tell U.K. Debt Office They Want More Long-Dated Bonds

  • Market makers also prefer longer-maturity gilts, DMO says
  • BOE’s QE purchases Tuesday have lower coverage than week ago

Investors’ appetite for longer-dated U.K. bonds shows no signs of fading, and they just told the government debt office they want more.

Market makers for gilts and investors expressed a preference for long-dated debt at both sales via banks planned in the fourth quarter, according to the minutes of meetings they had with officials of the U.K. Debt Management Office released on Tuesday. Some investors called for bonds of more than 50 years of maturity to be put on sale.

Gilts jumped on Tuesday after the Bank of England paid a premium to secure those maturing in more than 15 years at a bond-buying operation. Investors offered to sell 1.54 times the amount of debt the BOE set out to buy, down from 2.67 times a week earlier.

The central bank is trying ward off an economic slump by injecting more money into the economy through quantitative easing and through other measures after signs that Britain’s decision to leave the European Union is starting to hit confidence and business activity.

For its planned October sale, the DMO said the existing security due in 2065 was the most preferred gilt by market makers and investors, while there were “isolated calls” from both groups for the launch of a new gilt maturing in 2070 or beyond. For index-linked securities, the most popular choice among market makers was a re-opening of the inflation-linked gilt due in 2065.

Buyer Preferences

In the meetings Monday, market makers also strongly supported re-openings of the July 2047 gilt at conventional sales in the fourth quarter, “with some attendees suggesting it should be launched (and re-opened) via auction in sizes larger than the prevailing average size for long conventional auctions,” according to the DMO. Investors also supported re-openings of that security.

The gathering was aimed at gauging the market’s view on its choice of gilts for issuance in the fourth quarter of 2016. The regularly scheduled consultation comes two weeks after the BOE failed to attract enough sellers of long-dated bonds in the first week of its expanded QE program. Yields on 10- and 30-year gilts fell to record lows after the uncovered transaction.

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