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0.125% Aug-31 linker

GILT AUCTION PREVIEW
  • This morning, the DMO will come to the market to sell GB900mln nominal of the 10-year 0.125% Aug-31 index-linked gilt.
  • Real yields have fallen over 30bp since the MPC decision to leave rates on hold last week.
  • However, 10-year breakevens have remained high, above the 400bp mark implying that all of the move has been in nominal yields.
  • Despite some slightly wider tails at last week's auctions, we expect continued strong demand for inflation-protection from investors and therefore expect a strong auction this week.
  • The moves seen in global markets today following the upside surprise to Chinese inflation overnight show how sensitive the market remains to potential rises in inflation.
  • This will be the last linker auction of 2021 (although there is also a 40+ year linker syndication scheduled for the W/C 22 November).
  • We also note that there is only one linker auction scheduled for the January to March period, so there supply will remain very restricted over the next five months.
  • Timing: Results will be published shortly after the auction closes at 10:00GMT with a further GBP225mln available to successful bidders through the PAOF.
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