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Demand Healthy At UK GBP4.0B 2.25% 2014 Gilt Auction

The U.K. government’s latest gilt auction attracted reassuringly solid demand Thursday, data from the U.K. Debt Management Office showed.

The GBP4.0 billion tap of the 2.25% March 2014 Treasury gilt resulted in a bid-to-cover ratio of 2.11 times, up from 1.45 times at the inaugural auction of this bond, held March 19.

Meanwhile, the yield “tail”, or difference between the average and highest yields, a gauge of demand, fell to just 1.8 basis points, much smaller than the record high 9.8 bps outcome at the previous tender.

The average price was 97.33, for a yield of 2.839%.

The June gilt futures contact trimmed earlier price losses as the results calmed market fears of a possible repeat of the poor outcome at the bond’s initial offering.

“The memory of this caused significant cheapening of the bond since the size of the auction was announced,” said John Wraith, head of sterling rate products at RBC Capital Markets.

At 1000 GMT, June gilts were down 0.26 on the day at 122.43, but up from around 122.24 at the time the results were announced.

Analysts had been expecting the auction to struggle, as the bond falls outside of the Bank of England’s quantitative easing remit.

However, price action in the aftermath of Wednesday’s BOE buyback, and a further hefty bout of concession building early Thursday, enabled the sale to go smoothly, said Marc Ostwald, market strategist at Monument Securities.

“There was plenty of switching demand in evidence ahead of the sale, which is unsurprising given the yield pickup available out of the 5.0% 2014 UKT,” Ostwald added.

The BOE will announce details of next week’s gilt reverse auctions at 1500 GMT Thursday.

With U.K. Chancellor of the Exchequer Alistair Darling set to deliver his Budget speech Wednesday, the Bank’s buyback operations will be conducted on consecutive days, Monday and Tuesday.

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