UK - The UK Debt Management Office (DMO) has acknowledged pension fund demand for more index-linked and long-dated gilts but warned it will continue to issue as many as is sensible and "operationally feasible".

Speaking at the NAPF annual investment conference, Robert Stheeman, chief executive of the DMO, said the UK is the only country to regularly issue 50-year gilts and those across the curve to 50 years, and have domestic UK investors, such as pension funds, act as the main buyers.

He added that despite the continued demand for more "longs and linkers" the DMO has actually steadily increased the issuance of these gilts in absolute terms. In 2001/02, 100% of the issuance was index-linked and long-dated, and amounted to around £10bn (€11bn), whereas in 2009/10, the total issuance the value of these was around £80bn even though they accounted for just 36% of bonds issued.

Stheeman told delegates that the DMO is "fully aware of the demand for longers and linkers" and is trying to issue as many of these as possible, though warned demand is "lumpy" and unpredictable and therefore does not necessarily coincide with the DMO's auction programme.

To try and be more flexible in this regard, the DMO has developed supplementary distribution processes through syndication and mini-tenders, which allows it to issue a larger absolute amount of long-dated gilts. The six syndications so far held raised around £30bn, and Stheeman revealed "more than 90% of syndication has been taken up by the domestic UK investor base". 

Despite these attempts to increase distribution he noted there are still practical and operational constraints to the type and amount of gilts the DMO, which is part of HM Treasury, can issue. He therefore told delegates: "We, in the Treasury, will continue to issue as many index and long-dated gilts that is sensible and operationally feasible within our objectives."

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