Last week FT Alphaville wrote that an auction of £2.25bn worth of 2049-dated gilts was widely expected to be the real test of markets’ demand for UK government debt, having fewer of the supporting factors that helped lift sentiment for an earlier £4bn 2015 gilt-offering.
And on Wednesday, we get the results of the £2.25bn auction.
From Bloomberg:
Jan. 13 (Bloomberg) — The following issue went on sale today:
Issuer: HM Treasury
Manager: UK Debt Management Office
Amount Tendered: 4070.1 million pounds
Amount Allotted: 2250 million pounds (competitive)
Bid to Cover Ratio: 1.81
Average Price 98.21
Average Yield: 4.345 percent
Coupon: 4.25 percent
Maturity: Dec. 07, 2049
Settlement: Jan. 14, 2010
Security Number: {GB00B39R3707<Govt> DES <GO>}{GB00B54FNH32<Govt> DES <GO>} WI
It’s clearly not a gilt auction failure, but it’s not a big hit either.
The bid to cover ratio is lower than the previous tender (2.3 in a June 2009 auction). However, the yield tail, which is the difference between the highest and average yields, was 0.4bps, versus a previous 0.6bps, indicating bidding was pretty tight. All in all, a mixed bag.
Here’s some earlier theorising from Monument Securities’ Marc Ostwald:
“In the UK, the proximity of 4.5% in 30-yr yield terms (i.e. the benchmark for l-t yields) leaves ultra-long yields in the middle of the range of the past decade, and 54 bps higher than they were 3 months ago, while the FTSE 100 is 7.4% higher q/q and 34.3% higher over the past 6 month. Hence some fund managers, particularly those who are under pressure from actuaries, and/or who are overweight of equities on a valuation basis, and/or who are so large that they have to use “auction liquidity” to conduct larger (volume) switches, will probably be keen to participate. It should be added that none of these arguments are ‘de facto’ positives for Gilts, but arise by dint of circumstance.”
Related links:
More on that gilded Gilt auction – FT Alphaville
Risk-free status of government bonds comes under scrutiny – FT
Consolidating the US, UK gov’t bond sell-off – FT Alphaville