The U.K. Debt Management Office, the borrowing arm of the U.K. Treasury, is readying an ultra-long-dated index-linked gilt. The paper will offer a maturity of 40 or 50 years and will be sold in the third quarter, confirmed Steve Whiting, spokesman.
The initiative comes in response to global demand from insurance and pension fund investors for assets to match the long-dated liabilities on their books. It will follow the U.K. government's planned issue this week of the first conventional 50-year gilt in over four decades.
Whiting said the precise timing, size and maturity of the inflation-linked issue, known as an index-linked issue because it is tied to the U.K.'s retail price index, remains uncertain. The DMO will consult with investors next month to gauge demand.
The DMO decided to issue an ultra-long conventional gilt prior to issuing an index-linked gilt because the former deals tend to be larger, more liquid and easier to price. "Investors will be able to price the index-linked issue off the conventional gilts of similar maturity," commented Whiting.
The earliest an ultra-long issue could take place is at the first index-linked auction of the third quarter, scheduled for July 26; the auction after that will take place on September 22. The longest-dated index-linked gilt outstanding has a 33-year maturity and was issued in 2002.
France opened the 50-year govvie market in Europe in February when Agence France Trésor issued €6 billion worth of bonds maturing in 2055. Switzerland also has a 50-year bond outstanding, issued in 1998, but it is tiny by comparison at just over €120 million.