Investors press for more long-dated gilts

Pension funds and City traders yesterday called on the Government to ramp up the supply of long-dated gilts and introduce a new 40-year index-linked product to help deflate a price bubble in the market.

Investors and market-makers used a scheduled meeting with the Treasury and its Debt Management Office to raise concerns over the slump in gilt yields to historically low levels. The yield on the 50-year index-linked gilt plunged to 0.38 per cent last month. Analysts have blamed new pension rules that compel fund managers to buy long-dated gilts to fill their deficits, which in turn drives the price up and the yield down.

The minutes of the meeting said there was a general consensus for gilt issuance to be skewed toward long-dated gilts over the coming 2006-07 financial year. It said: "Many recommended the opening of new 40-year gilts, both conventional and index-linked, and for gaps in the curve between 30-year and 50-year maturities to be filled."

In particular, investors such as fund managers called for a "significant increase" in the supply of long-dated gilts over the coming year. "There were calls for the use of [emergency] taps to match the timing of client demand during ... 2006-07," the minutes said.

Market-makers and investors warned against neglecting the need for more short-dated gilts as well. Robert Stheeman, the chief executive of the Debt Management Office, said: "We continue to welcome feedback from gilt-market participants."

The minutes showed the Treasury expects to unveil plans to raise £70bn of debt in the coming financial year in the Budget, of which most would be in the form of gilts.