Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading


China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading


Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading

Categorized | Capital Markets

UK inflation debt sale attracts robust demand

Posted on November 29, 2016

A sale of UK index-linked bonds attracted more than £10bn in orders on Tuesday, in a fresh sign of demand for securities that offer some protection against rising consumer prices after years of subdued inflation.

It comes as investors assess competing forces affecting the UK economy following a vote to leave the EU in June. Expectations of economic growth fading at the same time that a slumping pound pushes up import prices, is seen complicating the Bank of England’s policy options in 2017.

The Debt Management Office issued a £2.25bn 40-year bond maturing in November 2056 at a yield of minus 1.466 per cent, two basis points below the yield of an existing bond due to mature in 2058.

So-called “linker” bonds pay a coupon determined by the prevailing rate of retail price inflation in the UK. That provides investors with a form of protection against inflation which erodes the value of fixed coupons paid on standard government bonds.

John Wraith, head of UK rates strategy for UBS, said Tuesday’s sale indicated substantial investor interest in such securities. “In round numbers most people are assuming over the next six months to two years inflation will rise to 2.5 to 3 per cent then stay there for some period of time,” he said.

Market prices also highlight a challenge facing the central bank, to support the UK economy through any disruption associated with Brexit negotiations while also targeting inflation of 2 per cent. The implied rate of annual retail price inflation for five years, in five years’ time, is around 3.5 per cent: “It’s probably on the high side,” said Mr Wraith.

Demand for such linkers has recently outstripped orders for conventional debt, with a September sale of £400m of such paper maturing setting a record low yield for a 20-year index linked bond.

Tuesday’s sale came after the government last week raised forecasts for UK borrowing over the next five years. Achim Linsenmaier, head of SSA Syndicate for Deutsche Bank, said “the long end of the linker market is a good place for the UK DMO to access, a lot of demand is coming from insurance companies and pension funds which naturally need these long dated inflation linked investments”.

Bank of America, Deutsche Bank, Morgan Stanley and Scotiabank advised on the syndicated deal.

Demand for traditional bonds has also remained strong in recent months. Overseas investors snapped up more than £10bn of British government bonds last month, even as bond yields rebounded from record lows set in August. The fixed coupon on gilts means such debt falls in value as yields rise.

Gilts held by non-residents grew £10.55bn last month, softening slightly from the £13.27bn climb in September, but marking the third consecutive month of rises after a contraction in August, according to data from the Bank of England.

Foreign investors own around one quarter of the UK’s outstanding gilt market and play a crucial role in the country’s ability to fund itself at low rates.