UK – The Debt Management Office says its auction of long-dated government bonds has met a “robust result”.

A DMO spokesman declined to speculate on the buyers. But he said: “It’s a fair bet they’ll find their way to the people you'd expect to be buying.” He cited statistics showing pension funds and insurance companies are the largest holders of gilts.

He added: “It’s the largest amount of risk we’ve ever put into the market in one day.”

The auction was widely watched amid increasing talk of pension fund demand for longer-dated assets. The demand is driven by accounting changes and regulatory concerns over the Pension Protection Fund levy, market participants say.

The DMO said the auction of £2.5bn of 41/2 Treasury Gilt 2055 was “allotted in full”. It received £3.7bn in bids, making it 1.49 times oversubscribed.

The National Association of Pension Funds has called on the DMO to issue more index linked long dated gilts.

“This is a demand driven story and we have not even begun to see the full extent of the market’s requirement,” said Quentin Fitzsimmons, manager of the Threadneedle Absolute Return Bond Fund.

“Although Thursday’s auction should help satiate demand in the short-term, it won’t substantially change the long-term dynamics.”

“The DMO is doing a good job in difficult circumstances to maintain an orderly market. The real issues now can only be solved by the politicians.”

Consulting firm Watson Wyatt said it questioned whether the increasing level of inflation-linked debt issuance can satisfy pension fund demand.

“This supply squeeze means the sterling inflation-linked bond market simply cannot accommodate a very large move into bonds by pension fund in the short term,” said senior investment consultant Nick Horsfall.

“As a result, it is likely yields will remain at current levels, with the potential for further falls depending on how quickly institutions continue to move into the market.”

Topics