UK DMO deal tombstone

Delivering the longest-dated gilt for 76 years

  • UK government raises GBP5 billion through a 55-year gilt
  • It is the longest maturity gilt since 1937
  • The deal shows the efficiency and depth of the gilt market and the UK's ability to raise cash

This deal shows the efficiency and depth of the gilt market and the strength of the UK’s ability to raise cash.

Money raised through the 55-year gilt, which has a 3.5 per cent interest rate and matures in 2068, will go towards financing public spending across the government’s services.

Fierce investor demand reached over GBP6 billion within 15 minutes and stood above GBP12 billion when the books closed.

The successful completion of the deal came despite one of the most unpredictable times in the market, with Federal Reserve chairman Ben Bernanke’s announcement of tapering quantitative easing leading to choppy prices and intraday volatility.

Last year, UK Chancellor George Osborne introduced the prospect of an ultra-long gilt to reduce the government’s long-term debt costs and lock in the current, favourable interest rates.

RBS played a central role in the transaction working for the UK Debt Management Office (DMO) – the government agency that raises about GBP160 billion a year for the public purse from the gilt market.

The bank is one of 18 on the DMO’s banking panel and was chosen as one of four joint lead managers to work on the deal. RBS was also chosen to be the 'duration manager' – a vital role that involves risk managing the huge number of switches that come into the transaction.

Myles Clarke, Co-Head Global Syndicate at RBS, said: “We have worked on more of these transactions for the DMO than anyone else. This, along with us being a leader in the market for gilt trades – as well as swap and inflation trades – meant we were in a strong position to take this deal forward.”

He said there were two main challenges involved in the transaction.

“Often, many buyers don’t want to buy the gilt for cash – they prefer to sell another gilt against it. This makes the whole process much more complex. Dealing with all those spinning plates and keeping on top of all that risk is extremely challenging and leads to an intense few hours while carrying out the trade.

“This was a global risk event. Investors in numerous markets outside sterling watched the development of this trade closely so there was no room for mistakes.

“The other challenge was navigating the sudden uncertainty that followed Bernanke’s announcement. These were without a doubt the most unsettled marked conditions we’d ever faced, coinciding with the highest risk trade the DMO had ever embarked upon. But I’m pleased to say it was one of the strongest deliveries they’ve ever had – a decent rate, very oversubscribed and good value for money.”

Myles added that the continuity of the 'front to back' team that has worked with the DMO over many years – including people in IT, settlements and legal as well as sales trading and syndicate – also reassured the client that the job would get done.

When the gilt was launched in June, DMO CEO Robert Stheeman said: “I am very pleased with today’s launch of a new 55-year maturity gilt, which has resulted in an eight-year extension of the nominal yield curve.

“The smooth execution of today’s transaction in the prevailing market circumstances once again reflects very well on the efficiency and depth of the gilt market and the support shown by our investor base and our primary dealers.”

The other banks involved in the transaction were Barclays, Lloyds and Nomura.