A DMO spokeswoman explained: "The index-linked market is much less liquid than the conventional market. The use of syndication is a one-off - future issues will be by auction - but it is the best way of ensuring a fair and transparent process of pricing."
The bonds will be indexed to inflation with a three-month indexation lag. The DMO has reduced indexation lags from eight to three months to keep in line with international best practice, the spokeswoman said. She added that future issues of 50-year linkers and other products will be by auction. "We have no plans to use syndication again," she said, although she added that an issue of US dollar bonds by the Bank of England on behalf of the Treasury in June 2003 was also carried out through a syndication.
The DMO's second auction of conventional 50-year gilts in July this year met a disappointing response, with bids of only 1.23 times the amount on offer.
The DMO has invited existing gilt market-makers for discussions on the syndication over the next few weeks.