U.K. Treasury to Sell Gilts Amid Brexit Uncertainty
April 26 2016 - 6:40AM
Dow Jones News
The U.K. Treasury is looking to sell several billion pounds of
long-dated debt Tuesday, in a key test of investor appetite for
British government bonds ahead of the country's June vote on its
membership of the European Union.
While the potential for Britain to leave the EU, the so-called
Brexit, has put pressure on the pound, it has yet to hit trading in
government debt or the country's main equity market. This could
soon change, analysts say, leaving investors looking for signs of
market reaction.
The government's financing arm, the U.K. Debt Management Office,
is planning to add to an existing £ 4.75 billion ($6.87 billion)
bond issue that pays an interest rate of 2.5% and matures in 2065,
according to a deal notice released by banks underwriting the deal
Tuesday.
The deal notice said the sale would be of "benchmark size," and
provided price guidance of 0.25 to 0.5 percentage point over the
U.K.'s outstanding 2068 bonds. Those bonds have a yield of 2.24%,
according to Tradeweb. For the U.K. government, benchmark size
would typically refer to an issue of over £ 1 billion. The Debt
Management Office has said it plans to raise £ 9.5 billion of
long-dated bonds through syndicated bond sales in the fiscal year
to March 2017.
Citigroup Inc., Deutsche Bank AG, HSBC PLC and J.P. Morgan Chase
& Co. are underwriting the deal, which is expected to price
later Tuesday.
The June 23 vote has yet to hit U.K government bonds, also known
as gilts, which have moved alongside a global rally in sovereign
debt. Rising prices have pushed the yield on 10-year gilts around
0.34 percentage points lower to 1.62% this year. Government debt
rallied at the start of the year as investors looked for safety
amid an uncertain global outlook.
Still, yields have ticked up from a recent low of 1.32% on April
7, with investors now reassessing their outlook on the global
economy.
In the U.K., it is the pound that has borne the brunt of
investor uncertainty so far this year. The pound is down 1.2%
against the dollar and nearly 5% against the euro this year after
paring losses over the past several days.
Write to Christopher Whittall at
christopher.whittall@wsj.com
(END) Dow Jones Newswires
April 26, 2016 06:25 ET (10:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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