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Preview: 0.125% Sep-39 index-linked gilt

GILT SYNDICATION
  • The DMO will come to the market this week to launch the new 0.125% Sep-39 index-linked gilt via syndication.
  • As is usual for gilt syndications, we expect this transaction to take place tomorrow.
  • This will be only the second linker syndication held since the RPI consultation was concluded. The other syndication saw GBP2.25bln nominal of the 30-year 0.125% Mar-51 linker sold in February with books of GBP20.9bln.
  • The new Sep-39 linker fills a gap in the current coupon curve between the 0.125% Nov-36 and 0.125% Aug-41 index-linked gilts which yield -2.37% and -2.20% respectively at the time of writing.
  • With the DMO looking to raise GBP9.0bln through index-linked syndication sales in FY21/22 we expect the size of the transaction to be in the region of GBP2.75-3.00bln nominal.
  • We note that demand for linkers is likely to remain strong: the market is particularly sensitive to the potential for higher inflation at present which makes inflation-linked bonds attractive; we also note that there has not been a single linker auction since the RPI consultation response that has seen a bid-to-cover of less than 2x.
  • Timing: Books for the April 30-year syndication opened at 8:30BST, but syndications in the FY20/21 were split between 8:30 (for the first four) and 9:00 (for the latter three). In all cases (including April 2021) updates have generally been given after 30 minutes, spreads set after 45 minutes and books closed after an hour. Pricing has taken place between 12:38-13:21.
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