The Debt Management Office (DMO) has sold a new tranche of long-dated index-linked treasury gilts at a gross real redemption yield of -1.32%, a record low which experts say is due to "structural" market imbalances.
The issuance of additional 2065-dated index-linked treasury gilts was priced at £201.34 per £100 nominal and raised a total of £5.1bn.
The DMO said the UK domestic market provided the predominant support for the issue, taking around 93% of the allocation.
This was the third transaction of the DMO's 2016-17 syndication programme, which was planned to raise a minimum of £26bn, including £16.5bn of index-linked gilts in four transactions and £9.5bn of long conventional gilts in two transactions.
DMO deputy chief executive Jo Whelan said: "I am very pleased with the successful re-opening of our 50-year ultra-long index-linked gilt which sees its amount outstanding rise to £5.25bn and was achieved at a record low real yield at a syndication.
"The result reflects the continuing strength of the gilt market and demand for UK government securities."
She said, while supply is expected to remain high - and would likely to increase the market by around a third over the next five years - it "will not come close to matching demand".
In a report published last month, Schroders head of research and analytics Duncan Lamont (pictured left) said UK private sector defined benefit schemes already own an estimated 80% of the long-dated index-linked gilt market - noting the potential demand is almost five times the size of the market.
Lamont noted: "Pension funds waiting for index-linked gilt yields to rise to 'attractive' levels are fighting a losing battle. The imbalance is structural and yields are likely to remain depressed relative to economic fundamentals for the foreseeable future.
He added that, given the long-dated inflation-linked nature of their liabilities, the key benefit pension funds gain from investing in long-dated index-linked gilts is management of liability risk and funding level volatility.
Lamont explained: "The index-linked gilt market was launched in the early 1980s to meet this specific need, with ownership initially restricted to pension funds or similar institutions writing pension business. From a pension scheme perspective, ‘value' comes from risk mitigation, not return generation. This has important implications for the dynamics of this market."
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