UK Sells Record £13B in 10-Year Bonds Amidst High Investor Demand
The United Kingdom has shattered its record by selling £13 billion ($16 billion) worth of 10-year bonds, witnessing an unprecedented surge in investor demand for securities offering yields near multi-decade highs.
The Debt Management Office (DMO) reported receiving £142 billion in orders for the newly issued debt, which was syndicated through various banks. The bonds were priced at 5.5 basis points over comparable benchmarks, leading to a "very strong reception from the market," according to DMO Chief Executive Jessica Pulay.
This sale surpasses the previous record set just last month, highlighting a trend of European sovereign borrowers breaking their own records recently. It suggests investors' eagerness to secure higher yields from new issues compared to existing bonds.
The demand is also attributed to investors seeking protection against the potential for further interest rate reductions by the Bank of England, which has kept yields historically elevated since 2008.
"Debt sustainability worries have eased somewhat, and the dovish split decision [by the BOE] has likely bolstered sentiment," said Evelyne Gomez-Liechti, strategist at Mizuho International, referring to last week's interest rate cut.
Despite the record-breaking sale, debt syndications may carry higher costs than auctions, but they allow governments to quickly raise significant funds while diversifying their investor base.
With the current supply peak and BlackRock Inc. adopting a neutral stance on gilts, the issuance pace for the remainder of the financial year may see adjustments. Strategists anticipate that the two remaining auctions for medium-maturity bonds will likely be smaller than their recent averages.
The market observers believe that this transaction marks the peak in gilt supply for the quarter, creating a supportive environment for outperformance in the gilt cross-market through March.