Huge demand for gilts sale led by banks
THE DEBT Management Office (DMO) raised a greater-than-expected £7bn in a syndicated sale of 25-year gilts yesterday, easing fears of a lack of investor enthusiasm for British government debt.
The DMO took orders for £15.25bn worth of gilts, making the sale by far the most popular syndicated sale of sovereign debt in history.
Yields on government bonds have risen since March on worries that gilt issuance would outpace supply and with Britain’s credit rating cut to “negative” by Standard & Poor’s, some commentators had warned that the sale process could be undersubscribed.
But the DMO, led by chief executive Robert Stheeman, was forced to expand the issue from between £3bn and £5bn to £7bn amid a flurry of interest that covered the amount of gilts on offer more than twice over.
The 2034 gilts, the first to be syndicated in four years, carry a coupon of 4.5 per cent, priced at a spread of 11 basis points more than the trading value of the 4.25 per cent gilt maturing in 2032.
The DMO plans to raise up to £225bn through the sale of Treasuries this year, a dramatic increase from last year’s total of £146.4bn.
Yesterday’s sale is unusual in that it was syndicated through four banks, HSBC, Barclays Capital, Goldman Sachs and Royal Bank of Scotland.
The syndication process is more costly for investors because of fees paid to the banks, but reaches a wider base of investors.
DMO chief executive Robert Stheeman said: “The execution of this transaction has been very orderly and the result is I believe a very good one, both for the UK government as a sovereign issuer and for the market as a whole.”
Gross proceeds from the transaction are expected to be around £6.85bn and take total gross gilt sales for the financial year to £53.4bn.
Yesterday’s syndicated sale of gilt-edged securities – the largest in history – was handled by a quartet of banks acting as lead managers – HSBC, Royal Bank of Scotland, Goldman Sachs and Barclays Capital.
Each bank’s syndication team had responsibility for a different aspect of the sale.
HSBC’s team, led by PJ Bye, handled press and communications, while Barclays Capital’s Sean Taor led their team controlling the exchange of older gilts among investors ridding themselves of bonds in order to take part in the new issue.
Royal Bank of Scotland, led by Miles Clarke, took the lead on the legal documentation and the Goldman Sachs team headed by Martin Weber, was responsible for logistics.
The four banks reported to the DMO, the agency led by chief executive Robert Stheeman, which manages gilt sales on behalf of the Treasury.