Strong demand for gilt sale despite worries over deficit

A KEY auction of government bonds was yesterday heavily oversubscribed, in a tentative sign that investors are still keen to buy UK debt despite fears over the country’s credit-worthiness.

The Debt Management Office (DMO) said it had received bids for 2.68 times the £4bn of five-year gilts on offer, equivalent to the highest level of demand for government bonds in nine months. The highest yield paid out to investors was 3.082 per cent, the DMO said.

The result of the auction will come as something of a relief to the government after Pacific Investment Management Co (Pimco), the world’s largest bond fund, earlier this week vowed to cut its exposure to government bonds in the UK and the US.

Pimco and other big funds such as BlackRock, Barings Asset Management and Standard Life have all expressed concerns about how the end of quantitative easing and the burgeoning public debt problem will affect the economic recovery.

The UK government is expected to sell £220bn of gilts over the next financial year, four times the average amount sold before the crisis.