Pension funds and insurers in the UK are likely to have some heavy expenditures in May, when they are to see a new ultra-long gilt on the market, according to the UK Debt Management Office, which provides investors and market makers with a consultation about their choices before making a bond auction.

The minutes of the most recent meeting between the DMO and gilt market participants made it clear that May 26 was the most obvious date for a new ultra-long bond, according to the Joanna Chung.

Plans for such a gilt were firstly disclosed during the preparation of the UK budget, in mid-March. Most of those at last week’s DMO consultation gave preference to a 50-year issue, but some stood for a 40-year bond.
Dealers also called the DMO to re-open conventional bonds maturing in 2032 and 2038, and also evinced an interest in launching a 2040 gilt.

The idea of a very long-term bond is not brand new, but it has become very popular in recent months. That is partially because pension funds are undergoing rising regulatory pressure to match long-term liabilities and assets. Besides, governments have also acknowledged that current financial conditions make long-term bonds a cheap way to grow funds.

If the DMO manages to issue an ultra-long bond by the end of May, it would be the first in the UK in more than four decades, according to Joanna Chung. But the UK is not the first in this field. The French went ahead last month by issuing a €6bn 50-year bond. This was so heavily oversubscribed, with UK institutions among the biggest buyers, that the yield made up 4.21 per cent.