LONDON- Britain sold 50-year index-linked bonds with a face value of 1.8 billion pounds ($2.27 billion) on Wednesday, the United Kingdom Debt Management Office said, after bookrunners reported more than 20.5 billion pounds in orders.
The bond sold with a real yield of -1.6451%, meaning it will pay an interest rate that is 1.6451 percentage points below the prevailing rate of retail price inflation, which hit a 31-year high of 9.0% in March.
Demand for British index-linked debt is generally strong - reflecting appetite from pension funds and insurers with inflation-linked liabilities - and has been bolstered by the sharp rise in inflation over the past year.
But prices for ultra-long inflation-linked debt have fallen in recent months after hitting an all-time high in December 2021, due to a broader drop in bond prices in anticipation of a global tightening of monetary policy to combat higher prices.
The price paid suggests investors expect RPI to average around 3.4% over the lifetime of the bond - although comparisons are complicated by the fact that RPI is likely to be recalculated to match the lower CPIH inflation rate from 2030.
The 2073 linker was priced to yield 5.75 basis points less than the current 50-year benchmark index-linked gilt, which matures in March 2068 . This reflected a price at the top end of initial guidance, as is usual at British government bond syndications.
Barclays, Bank of America, Citi and Nomura acted as joint leads on the transaction.
The DMO aims to raise 131.5 billion pounds from gilt sales this financial year. Wednesday's syndication was the first for 2022/23.
The 2073 gilt trades at more than twice its nominal value, so the 1.8 billion pounds in nominal sales should raise around 4 billion pounds.
The DMO aims to raise around 8 billion pounds through two syndicated sales of index-linked gilts this year, and 13 billion ponds from three sales of long-dated conventional bonds.
Britain has scaled back index-linked bond issuance in recent years, partly due to government concern that the public finances were becoming over-exposed to inflation shocks.
($1 = 0.7938 pounds)
(Reporting by David Milliken Editing by William Schomberg and Andy Bruce)