The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

50-year linker tests UK gilt market

Questions remain over how best to price ultra long-dated linkers and the role of hedge funds.

The UK Debt Management Office's syndication of its £1.25 billion, 50-year index-linked bond last month is an understandable strategy. The DMO did not want a repeat of the unenthusiastic response to its conventional 50-year auction in May. But while the deal went smoothly, it left some questions about very long-dated linkers unanswered. Firstly, there is the matter of pricing. Books opened with indicative price guidance at 14 basis points to 19bps below the 2035 index-linked gilt. The book grew to £1 billion in four hours and eventually exceeded £2 billion on day two, when price guidance was tightened to 17bps to 19bps below the 2035. It finally priced at 19bps below the 2035.

Options

The UK had several options when it first thought about how to price the longest dated sovereign index-linked bond in the world. "You can look at the real yield curve and extrapolate forward, look at the breakeven curve and interpolate that curve forward, or have the mathematicians look at convexity," says Dave Hooker of Insight Investment's UK fixed income team.

With a potential investor base varying from price-insensitive trackers to hedge funds that value convexity, it was hard to pick a right or wrong approach for the deal as a whole.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree