Tuesday, May 11, 2021

US CPI rises but core inflation still subdued – business live | Business

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British 10-year index-linked bonds attracted record demand at a government auction on Wednesday, adding to signs of concern that inflation might rise faster than expected.

Investors submitted 2.832 billion pounds ($3.93 billion) of bids for the 800 million pounds on offer of an index-linked bond maturing in August 2031.

That gave a bid-to-cover ratio of 3.54, the highest for any index-linked bonds since such auctions began in 1998.

Inflation worries have played a big role in the sell-off of U.S. Treasuries this year, with a knock-on impact for conventional gilts, which suffered their biggest monthly drop since October 2016 in February.

British index-linked bonds pay a return linked to the retail prices index of inflation, and the 2031 bond sold with a real yield of -2.595%, giving investors an annual return 2.595 percentage points below the prevailing rate of RPI.

Annual RPI was 1.6% in January, and the 10-year index-linked gilts price in an average RPI rate of just under 3.4%, their highest since late 2019 and up from just over 3.0% at the start of the year.

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