Investors eat up UK inflation-linked debt despite record low yield

The UK has sold a tranche of debt that will pay investors the lowest inflation adjusted yield on record.

Investors hoovered up over £1bn in inflation-linked gilts maturing in 2073 paying the lowest yield on any syndicated gilt sale ever. The maturity date is also the longest for any inflation-linked debt issued.

Inflation-linked debt is typically highly sought after due to big institutional investors, such as pension funds, needing to hold a significant proportion of them in their portfolio to pay for inflation-linked liabilities such as pension top ups.

The UK Debt Management Office, the agency that manages the government’s borrowing activities, managed to sell £1.1bn of inflation-linked debt at a real interest rate of minus 2.3883 per cent.

Investors will receive a return 2.3883 percentage points lower than the retail price index.

Inflation-linked debt is tied to the retail price index, which climbed to its highest level since 1990 last month, hitting six per cent.

The instruments act as an effective hedge as they partly offset reductions in real yields caused by inflation.