| Yields of long-dated gilts at their lowest |
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LONDON: Britain's debt management office has sold the latest tranche of index-linked 50-year government bonds on their lowest-ever yield as pension funds desperately tried to buy the securities to match their long term liabilities.
The debt management office said its 650-million-pounds worth of 2055-dated gilts auction was 1.75 times oversubscribed and the real yield of 46 points was the lowest ever for an auction.
The initial tranche of the 2055 gilts sold last year was on a real yield of 1.112 per cent, but the prices have almost halved.
Meanwhile, yields on gilts in the secondary markets fell to an all-time low of 0.38 per cent last week as pension funds scurried to get their hands on long-dated instruments to plug deficits. Pension fund managers are faced with the problem as pension liabilities are valued using the bond yields. If the yields fall, funds have to buy more, which in turn drives the price up and the yield down.
Financial planners have been asking the treasury to issue more long-dated gilts or annul the new pension regulation scheme. Changes in pension rules require the funds to invest in more secure instruments and this is forcing the funds to change their portfolios into bonds.
Meanwhile gilt market participants, including investors, are expected to meet the debt management office and the treasury as part of an annual consultation to discuss the government’s financing remit for the next financial year.
Posted
on : Wed, 25 Jan 2006 20:00 GMT | Pensions News
By : Mike Lawson
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