UK pays record yield on new inflation-linked bond in syndication sale

LONDON (Reuters) - Britain's government on Tuesday paid the highest yield on an inflation-linked bond sold via a syndication since it began such sales almost 20 years ago.

The government's debt office said it received a record 67.5 billion pounds ($87.28 billion) in orders for the new 25-year linker in its final syndication of the 2024/25 financial year, according to bookrunners on the sale.

The Debt Management Office said it would sell 5 billion pounds' worth of the 1.875% September 2049 index-linked gilt.

Demand just exceeded the 66.0 billion pounds of orders at the 4.25 billion-pound sale of a 1.25% 2054 index-linked gilt in November last year.

However, in a sign of the rising cost of long-term government borrowing, the real yield of 2.0234% was the highest since the DMO began selling bonds via syndicates in September 2005 and compared with November's real yield of 1.5692%.

Global bond yields have climbed higher in recent months, partly reflecting concerns about higher government borrowing across advanced economies since Donald Trump's election for a second term as United States president.

The Bank of England last month raised its forecast for headline consumer price inflation in Britain to hit 3.7% later this year and said it was only likely to return to its 2% target in late 2027.

British index-linked bonds price in an average inflation rate - using the faster-rising retail prices index - of 3.2% for the next 25 years, down from a peak of nearly 4% in early 2022.

Price guidance for the 2049 index-linked gilt was set to give a yield 1 basis point above the real yield of the benchmark 0.125% 2048 index-linked gilt, representing a price at the top end of initial guidance.

Bank of America, J.P. Morgan, Lloyds and UBS acted as joint leads on the transaction.

($1 = 0.7734 pounds)

(Reporting by William Schomberg; editing by David Milliken)