LONDON (Reuters) – Britain’s government on Tuesday paid the highest yield on an inflation-linked bond sold via a syndication since it began such sales almost 20 years ago.
The government’s debt office said it received a record 67.5 billion pounds ($87.28 billion) in orders for the new 25-year linker in its final syndication of the 2024/25 financial year, according to bookrunners on the sale.
The Debt Management Office (DMO) said it would sell 5 billion pounds’ worth of the 1.875% September 2049 index-linked gilt.
Demand just exceeded the 66.0 billion pounds of orders at the 4.25 billion-pound sale of a 1.25% 2054 index-linked gilt in November last year.
However, in a sign of the rising cost of long-term government borrowing, the real yield of 2.0234% was the highest since the DMO began selling bonds via syndicates in September 2005 and compared with November’s real yield of 1.5692%.
Global bond yields have risen in recent months, partly reflecting concerns about higher government borrowing across advanced economies since Donald Trump’s election for a second term as U.S. president.
The Bank of England last month raised its forecast for headline consumer price inflation in Britain to hit 3.7% later this year and said it was only likely to return to its 2% target in late 2027.
British index-linked bonds price in an average inflation rate – using the faster-rising retail prices index – of 3.2% for the next 25 years, down from a peak of nearly 4% in early 2022.
Price guidance for the 2049 index-linked gilt was set to give a yield 1 basis point above the real yield of the benchmark 0.125% 2048 index-linked gilt, representing a price at the top end of initial guidance.
Bank of America, J.P. Morgan, Lloyds and UBS acted as joint leads on the transaction.
The DMO said domestic demand accounted for 87% of the bond sold and its chief executive Jessica Pulay said it was encouraging to see investor appetite for a relatively long-maturity offering “in the current market environment.”
Global bond markets have been hit by volatility triggered by the Trump administration’s policy announcements, including his stop-start import tariff plans, and by Germany’s plan to spend 500 billion euros ($546.10 billion) on infrastructure and relax borrowing rules on defence spending.
($1 = 0.7734 pounds)
($1 = 0.9156 euros)
(Reporting by William Schomberg; editing by David Milliken and Susan Fenton)
