Leads Bank of America Merrill Lynch, Barclays, Deutsche Bank and RBC Capital Markets took just an hour to take orders of more than £26.4bn ($34.15bn), including £4.85bn from the lead managers, which formed the largest book ever in both nominal and cash terms for a UK syndication. Fittingly, this was the UK Debt Management Office’s (DMO) 50th successful offer since it started its syndication programme in 2009.
“The previous nominal record was on the first syndication of this Gilt in January, but this week’s book exceeded that by quite a margin — £2.8bn,” said Jo Whelan, deputy chief executive and co-head of policy and markets at the UK DMO.
Bankers on the trade were quick to point out the reasons for the success — particularly given the backdrop in the UK.
“The DMO does a great job investigating the market every day and making many calls and analysis over and above the call and duty,” said a head of SSA DCM at one of the leads. “That requires a huge amount of work and dedication to do over and over again, but it’s why they end up with these successes.
“The DMO delivered a record order book in a market that has rallied quite noticeably, in the midst of a political environment that is heading towards an election and, of course, Brexit.
“If this was a different country with a different DMO about to head into new elections, with questions over the terms of trade with its big trading partners, and it did a 40 year deal with a record order book then we’d all be saying huge congratulations.”
The UK was tapping its 1.75% 2057 Gilt and had opened guidance at 2.5bp/2.75bp over the 4% January 2060 Gilt. Unsurprisingly given the book, the leads were later able to price at the tight end of that range with a £5bn deal.
“The market was essentially stable over the course of the transaction,” said Jessica Pulay, co-head of policy and markets at the UK DMO. “Not only was the overall curve relatively stable going into and through the transaction, but so was the spread relationship between the bond being sold and the 4% 2060 reference bond. That spread was extremely stable and had been for a while.
“We can also be pleased with how the market performed subsequently; the spread between the 2057s and the 2060s had tightened slightly by Wednesday morning.”
UK investors took around 87% of the bonds.
Due to the strong demand, the DMO moved £500m from the unallocated portion of its £114.2bn funding target for this year to its long conventional syndication pot. That now stands at £9.5bn, while the minimum for the overall syndication programme — which includes linkers — is £21.5bn.
The UK DMO expects that its next syndication will be an index-linked deal in July, with another trade to follow in September.
