London: Britain drew record demand from investors for a long-dated bond when it sold a 40-year gilt on Tuesday in its first syndicated bond sale for the 2017/18 financial year.

Orders totalled £26.4 billion (Dh125.4 billion, $34 billion) and the country’s debt office sold a nominal £5 billion of the gilt which matures in 2057 and carries a coupon of 1.75 per cent.

“There was clearly huge demand for the bond,” Vatsala Datta, a fixed income strategist at Royal Bank of Canada, said.

The orders represented the highest level of demand seen in a syndicated sale of long-dated gilts since the UK Debt Management Office (DMO) started such sales began during the global financial crisis.

“On a day of plentiful international bond issuance, it was gratifying that this ran extremely smoothly,” said Jo Whelan, the DMO’s deputy chief executive, adding that the sale would increase the volume of the gilt in issue to £9.5 billion.

France received more than €30 billion ($33.2 billion) of orders for a new 30-year bond on Tuesday, highlighting strong demand at a sale seen as the first big test of sentiment following the French presidential election.

Yields on long-dated British government bonds fell in response to the sale, which underscored the strength of demand among institutional investors such as pension funds for assets paying steady returns over the coming decades, Datta said.

Initial guidance

Domestic investors accounted for 87 per cent of demand for the gilt, in line with the standard strong home bias in British government bond syndications.

The 2057 gilt sold at a yield of 1.690 per cent, equivalent to a premium of 2.5 basis points to the January 2060 gilt.

As usual at British gilt syndications, this was at the tight end of initial guidance, reflecting strong demand.

Forty-year UK yields are down from seven-month highs of just below 2 per cent seen in late January, but are well off record lows of barely 1 per cent plumbed in August, when concerns about a post Brexit vote slowdown were peaking.

Datta said she had expected the Debt Management Office to sell £4.5 billion of the 2057 gilts on offer on Tuesday but probably raised the size of the sale to meet demand.

The DMO said that in response to the strong demand, it had increased the portion of its 2017/18 issuance programme devoted to long-dated gilts by £500 million to £9.5 billion.

Bank of America Merrill Lynch, Barclays, Deutsche Bank and Royal Bank of Canada acted as joint bookrunners for the transaction.

June long gilt future 127.64 (-0.17)

June 2017 short sterling 99.68 (unch.)

Dec 2017 short sterling 99.62 (unch.)

10-year gilt yield 1.14 per cent (unch.)