The Debt Management Office (DMO), the Treasury agency that sells government bonds, ran two sales in the week after the 30-year gilt yield touched 6.02%. A gilt yield is the annual return lenders demand to hold the bond to maturity. On 13 October £500m of the DMO's 4% 2063 gilt, paying 4% a year on its face value and repaid in 2063, was covered 3.98 times at an average yield of 5.802%1. On 14 October £5bn of the 4⅝% 2030 gilt drew £17.07bn of bids, 3.41 times cover, at an average yield of 4.945%2.
Both sales had a tail of 0.2 basis points, or 0.002 of a percentage point, between the average accepted yield and the worst one, so the bids sat almost on top of each other. Both cover ratios beat September's weakest sale at 3.07 times and sit within or above the range of August and early September, when an index-linked 2049 gilt drew 3.58 times.
On 2 October the DMO also announced an ad hoc tender for 7 October, an extra sale outside its published calendar, of up to £1.5bn of its 0⅛% 2028 gilt, drawn from the unallocated part of this year's issuance3. Lowdown reads that as the agency selling short, low-coupon debt where demand is, in the same days that long yields reached 1998 levels. Short gilts fall due sooner, so the Treasury must refinance that money in 2028 at whatever rates hold then.
Cover ratios measure appetite, and the yield sets the price. Bank Rate, the Bank of England's main policy interest rate, was 3.75% after the Bank held it on 16 September, yet the 2063 gilt cleared more than two points above it. Lenders keep turning up, and they charge more to do it.
