UK's 50-year linker breaks new ground

"We have successfully opened a new sector of the index-linked gilt market, matching the extension of the conventional gilt curve earlier this year," said Robert Stheeman, chief executive of the UK Debt Management Office (DMO). "The syndicate of banks who have delivered this result have assembled a strong order book from a broad range of investors, thereby setting the foundation for an active and efficient market for the new gilt."

That the gilt was issued via a syndicated offering was another first for the UK gilt market. The joint lead bookrunners were Barclays Capital, Morgan Stanley, Royal Bank of Scotland (RBS) and UBS. RBS also won the coveted role of duration manager on the deal.

The DMO opted for the syndication route instead of its usual auction, due to the 50-year gilt's innovative characteristics, in particular in relation to the opening up of a new sector of the sterling market where few points of comparison exist for the purpose of pricing. The syndication process was seen as the best way to ensure a fair and transparent price formation process, benefiting both investors and the issuer.

"The deal is an all-round winner. The DMO achieved what they set out to achieve - from the price discovery process through to the smooth execution of the trade," said Chris Thomas, head of sterling inflation at RBS in London.

The deal was placed primarily in the UK (90%) and the rest went to Continental buyers. Of the UK buyers, many were pension funds, fund managers, insurance companies and banks.

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