DMO order book shows super-high demand for Gilts

Gilts are in high demand these days as seen in latest auction of ultra-long dated debt.

This week UK debt management office (DMO) issued 53 year government bond, which was surprisingly gobbled up by investors at record low yield.

The debt wasn't auctioned directly but syndicated, which means it was sold through banks. This indicated that DMO wasn't sure how demand would shore up for such long dated debt.

However, investors submitted orders worth £ 15.5 billion for £ 4 billion offering. Naturally the entire debt was gobbled up at record low yield of 2.736%. In March 2068 Gilts were sold at lower yield of 2.623% but size was much smaller at £ 1.5 billion.

This auction was a milestone. It was largest order book ever for such long debt, which got cleared at record yield.

With low interest rate environment, UK DMO is regularly financing through longer end of the curve. There is now £19 billion worth of outstanding 2068 Gilts.

Trade idea -

• With rate hike from BOE looming in the horizon and strong appetite for longer dated yield. One can go short in short end of the curve (2 yrs) and long the very longer end (30 yrs).