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UK draws record demand for inflation-linked bond

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UK draws record demand for inflation-linked bond

LONDON (Reuters) – British 10-yr index-linked bonds attracted record demand at a government public sale on Wednesday, adding to indicators of space that inflation would possibly possibly perhaps perhaps upward push quicker than anticipated.

FILE PHOTO: Pound banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

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Investors submitted 2.832 billion pounds ($3.93 billion) of bids for the 800 million pounds on offer of an index-linked bond maturing in August 2031.

That gave a report-to-duvet ratio of 3.54, the excellent for any index-linked bonds since such auctions began in 1998.

Inflation worries have performed an unbelievable role in the sell-off of U.S. Treasuries this yr, with a knock-on influence for primitive gilts, which suffered their biggest month-to-month drop since October 2016 in February.

British index-linked bonds pay a return linked to the retail prices index of inflation, and the 2031 bond sold with a accurate yield of -2.595%, giving patrons an annual return 2.595 proportion recommendations below the prevailing rate of RPI.

Annual RPI used to be 1.6% in January, and the 10-yr index-linked gilts tag in an average RPI rate of right below 3.4%, their highest since gradual 2019 and up from right over 3.0% before all the pieces of the yr.

The Monetary institution of England targets the patron prices index measure of inflation, which currently stands at 0.7% nevertheless which the BoE and most economists quiz to upward push shut to its 2% target by the live of the yr if no longer sooner.

“Outright commodity tag rises and depraved results must push up meaningfully on the energy inflation facet of the CPI in the coming months,” Nomura economists wrote in a indicate to purchasers.

BoE Chief Economist Andy Haldane warned against complacency last month, likening inflation to a tiger on the prowl.

Wednesday’s public sale used to be Britain’s penultimate sale of inflation-linked bonds this monetary yr, when the United Kingdom Debt Administration Space of job is on video display to sell greater than 33 billion pounds of index-linked debt, 7% of its complete issuance.

Within the course of the 12 months starting in April, the DMO plans to sell a an identical volume.

($1 = 0.7206 pounds)

Reporting by David Milliken; Bettering by Hugh Lawson

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UK draws record demand for inflation-linked bond – Reuters