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Derivatives Markets: What’s behind the boom year for sterling linkers?

Roger James finds out why the latest United Utilities water deal continues an amazing year for the UK inflation-linked market.

A version of this article first appeared in Total Derivatives.

Total Derivatives is the prime source of real-time news and analysis of the global fixed income derivatives markets.

“If someone had said 18 months ago that 18% of our regulatory asset value would be funded by index-linked bonds and that our maturity profile would have risen from an average maturity of 13 years to 30 years, I wouldn’t have believed them”
Tom Fallon, UUW

The latest inflation-linked offering from prolific UK issuer United Utilities Water came to the market in mid-November, a £35 million ($66 millon) 50-year issue lead managed by Royal Bank of Scotland. The deal carried a low 1.3805% coupon and was priced at par. No big news there then: after all such deals are 10-a-penny, and by the recent standards of utility issuance, this is rather on the small side. Certainly it is believed that much larger utility linker bonds are in the pipeline. And of course a range of UK utilities have already been very active in inflation-linked this year, including National Grid, Thames Water, Severn Trent Water and Wessex Water.

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