© Reuters. Pound banknotes are seen on this illustration
By David Milliken
LONDON (Reuters) – British 10-year index-linked bonds attracted document demand at a authorities public sale on Wednesday, including to indicators of concern that inflation would possibly rise sooner than anticipated.
Traders submitted 2.832 billion kilos ($3.93 billion) of bids for the 800 million kilos on provide of an index-linked bond maturing in August 2031.
That gave a bid-to-cover ratio of three.54, the very best for any index-linked bonds since such auctions started in 1998.
Inflation worries have performed an enormous position within the sell-off of U.S. Treasuries this yr, with a knock-on impression for standard gilts, which suffered their largest month-to-month drop since October 2016 in February.
British index-linked bonds pay a return linked to the retail costs index of inflation, and the 2031 bond offered with an actual yield of -2.595%, giving buyers an annual return 2.595 share factors under the prevailing charge of RPI.
Annual RPI was 1.6% in January, and the 10-year index-linked gilts worth in a median RPI charge of slightly below 3.4%, their highest since late 2019 and up from simply over 3.0% in the beginning of the yr.
The Financial institution of England targets the buyer costs index measure of inflation, which at present stands at 0.7% however which the BoE and most economists anticipate to rise near its 2% goal by the tip of the yr if not sooner.
“Outright commodity worth rises and base results ought to push up meaningfully on the power inflation element of the CPI within the coming months,” Nomura economists wrote in a notice to purchasers.
BoE Chief Economist Andy Haldane warned in opposition to complacency final month, likening inflation to a tiger on the prowl.
Wednesday’s public sale was Britain’s penultimate sale of inflation-linked bonds this monetary yr, when the UK Debt Administration Workplace is on track to promote greater than 33 billion kilos of index-linked debt, 7% of its complete issuance.
Throughout the 12 months beginning in April, the DMO plans to promote an analogous quantity.
($1 = 0.7206 kilos)
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