UK - The UK’s Debt Management Office (DMO) should consider the issuance of amortising bonds and other gilts better suited to the needs of pension funds, according to Hymans Robertson.

Speaking as the DMO concluded a consultation on the issuance of long-dated gilts, following controversial suggestions by chancellor George Osborne for 100-year paper, John Dickson instead suggested that it was important to focus on guaranteeing liquidity within the gilt marketplace.

Dickson, the company’s head of investment advisory, said that in principle, he was not against long-dated gilts, but that the priority should be for issuances dated to maturity of up to 50 years.

“The ultra-long bonds really seems a little bit gimmicky compared to providing liquidity more across the spectrum we are targeting at the moment,” he told IPE.
He stressed that it was more important to look at the “shape of demand” within the marketplace if the DMO was considering the issuance of a new maturity of gilt.

“From a pension scheme perspective, I don’t really want a series of small coupons and a big payment at the end,” he said. “I want something that is on an amortising schedule, or I want something in the inflation-linked space that has a floor on inflation of zero, because that’s what the pension liabilities have and it’s not available in the markets.”

Amortising bonds have recently been introduced by Ireland’s National Treasury Management Agency, with their issuance tying in with legislation allowing its pension funds to buy sovereign annuities - with the amortising paper forming the basis of the new annuity.

Dickson said it was important for a “structured bond that better meets the need of pension funds and annuitants” and suggested that there would be interest from the dual client base of UK pension funds and insurers in amortising bonds.

“The demand from those two sets of capital providers is starting to align, because a lot of schemes are starting to look to insurance solutions for their liabilities,” he added.