UK sells new 2073 bonds with face value of £5.5 billion

BRITAIN sold £5.5 billion (S$9.4 billion) worth of government bonds maturing in October 2073 on Tuesday (Jun 21), after receiving £43.5 billion of orders in a syndication, the United Kingdom Debt Management Office said.

The sale will raise just £3.2 billion for the public purse, however, in a stark illustration of how surging interest rates have hammered the value of fixed-income assets since the bond was first issued in February.

Two-year British government bond yields hit their highest since 2008 on Tuesday and 30-year yields rose to their highest since 2015 as investors marked down the value of fixed-income assets in the face of surging inflation and the prospect of further Bank of England interest rate rises.

The 2073 bond carries a coupon of 1.125 per cent, but investors paid just over half the bond's face value and will receive a yield of 2.6358 per cent if they hold the bond to maturity - more than twice the bond's 1.3 per cent yield at launch.

The yield is 3.5 basis points less than the 50-year benchmark gilt which the bond was priced against, which represents a price at the top end of initial guidance, as normal at British government bond syndications.

"The success of today's sale was particularly welcome given the ongoing high levels of volatility in the gilt and other fixed income markets and the inherently high duration risk of this ultra-long bond," DMO chief executive Robert Stheeman said.

Some 91 per cent of the bonds were sold to domestic investors, many of them pension funds and insurers that must hedge long-term liabilities.

Britain aims to sell £13 billion of long-dated conventional linked bonds and £8.5 billion of index-linked gilts this financial year, as part of broader plans to raise £131.5 billion.

Lloyds Bank, Morgan Stanley, NatWest Markets, RBC and Santander acted as joint bookrunners on the transaction. REUTERS