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GILT AUCTION PREVIEW: The DMO is expected to launch its new 1.625% 2071 nominal
Gilt via syndication Tuesday. Joint Bookrunners are Barclays Bank plc, Deutsche
Bank, Goldman Sachs International and NatWest Markets plc
- BACKGROUND: This is the first nominal syndication since the 2.5% 2065 Gilt was
launched back in September 2017 and is likely generate large demand from pension
funds and insurance companies to match long-dated liabilities. DMO's financing
remit for 2018/19 envisages a total of Stg9.5bln in long conventional Gilt
offerings and so size could be up to Stg5bln.
- RV: There has not appeared to be much concession in the ultra long end of the
Gilt curve with the 50-yr sector trading between 1.50% and 1.80% for the past
year with the 3.5% 2068 Gilt last at 1.71%. RBC says that fair value of the new
2071 Gilt looks to be -0.2bp vs 3.00% 2068 Gilt using a extrapolated (cubic
spline) curve. While using duration implies a fair value of -3.4bps adds RBC.
Therefore taking an average of the two RBC come up with a fair value of -1.8bp
vs 68's. Adding in some convexity RBC get to a fair value of -2.3bps vs 2068