Bank launches DM5bn bond to boost reserves

THE BANK of England will this morning launch a DM5bn (pounds 2.1bn) issue on the Eurobond markets to help replenish the foreign exchange reserves raided in the support of the pound in the last few weeks.

The issue is the largest fundraising on the mark bond markets, other than those by the German government itself, and is twice the size of any previous issue.

The timing is understood to give no indication of the Bank of England's feeling about the pound's position relative to the mark, although if the pound has reached its low point, this would reduce not only the interest burden but also the cost of redeeming the bond in sterling terms.

The bond issue, which is being led by Deutsche Bank, will be priced this morning. It is expected to carry an interest rate only 0.1 percentage point above that for the equivalent German government bond, giving an overall rate of 7.15 per cent.

The issue forms part of the programme, announced last month, for the Government to borrow ecu10bn ( pounds 8bn) to replenish the foreign exchange reserves.

Half has been raised in a series of short-term deals, leaving only ecu2.5bn to be raised, which will be completed in the next few months.

The reception in pre-marketing is understood to be good. The joint lead managers with Deutsche Bank are seven German banks and five UK institutions. There are 17 other international institutions also selling the bonds. The bonds will be listed in Frankfurt and London and will be covered by British law, rather than German.

The interest from the market, at what is seen as a tight price, shows that there is still confidence in the Government's financial strength and creditworthiness, despite recent setbacks for the Government which have increased the political risk as perceived by the Euromarkets.