2nd UPDATE: UK Accounts Buy 99% Of GBP6B 2040 Gilt Linker

27th Jul 2010 17:14

(Adds comment, details) By Michael Wilson and Art Patnaude Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Ninety-nine percent of the GBP6 billion, 0.625% index-linked gilts sold by the U.K. Debt Management Office Tuesday were bought by U.K. accounts, according to the DMO. Robert Stheeman, the Chief Executive of the DMO said he was pleased with the result of the offering, which drew almost GBP10 billion of orders from a range of 64 fund managers, pension funds and insurance companies. "Again the syndication process has worked well, and this reflects well on the commitment of all parties in the gilt market as well as the ongoing robustness of the market itself," Stheeman said. "As a consequence of the sale we have now established a 30-year index linked gilt of benchmark size, with GBP9.5 billion in issue after only two operations, while achieving fair value for the taxpayer". Tuesday's deal, which is the largest syndicated index-linked transaction to date, brings the total size of the issue to GBP9.5 billion. This is the first index-linked transaction to come to market since the U.K. government recently announced it would start using the Consumer Price Index instead of the current Retail Price Index as a reference point for pensions. This caused some concern amongst pension fund managers as no CPI product currently exists to match those liabilites. Myles Clarke, head of bond syndicate at the Royal Bank of Scotland said the government needed to give investors time to digest the implications of the decision and make sure they had enough information to continue participating in new issues. "One day there may be a CPI bond out there, but the take up on today's transaction shows there's still huge demand to hedge pension liabilities," he said. While the U.K. government has said it isn't currently considering issuing a CPI linked bond, the DMO is open to feedback from market participants. In a written response to a question posed by former City minister Lord Myners, Treasury Minister Lord Sassoon said: "The Debt Management Office (DMO) is always ready to listen to feedback from its stakeholders on possible actions to be taken to meet market requirements. The DMO's remit makes clear that it would consult market participants, and seek HM Treasury's approval, before introducing any new instruments, although there are no plans to consult at this stage." Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings PLC, and Royal Bank of Scotland Group PLC were appointed lead managers for Tuesday's deal, which priced with the following terms: Amount: GBP6 billion Maturity: March 22,2040 Coupon: 0.625% Reoffer Price: 89.914 Payment Date: July 28, 2010 Spread: Flat to the 1.125% Nov. 2037 Yield: 1.02% Debt Ratings: Aaa (Moody's) AAA (Standard & Poor's) AAA (Fitch) Denominations: GBP0.01 Listing: London So far this year, the DMO has sold GBP75.6 billion of gilts, almost half of its GBP165 billion target. Around GBP26 billion of this has been sold via syndication. -By Michael Wilson and Art Patnaude, Dow Jones Newswires; +44 (0) 207 842 9259; [email protected] (Laurence Norman in London also contributed to this article.) (END) Dow Jones Newswires July 27, 2010 12:14 ET (16:14 GMT)