Britain sees strong demand at syndicated sale of 2058 linker

(Clarifies changes to DMO linker syndication programme)

LONDON, Jan 28 (Reuters) - The sale of one of Britain's longest dated inflation-linked government bonds drew strong demand on Wednesday, producing the lowest negative real yield on record for a syndicated offering of gilt linkers.

The sale of a nominal 3 billion pounds ($4.55 billion) of the 2058 linker took the size of the UK Debt Management Office's index-linked syndication programme for this financial year to 10 billion pounds, 1 billion pounds more than it had previously planned.

As a result, the DMO cut the size of its mini-tender programme by the same amount, meaning there will be no more tenders in the 2014/15 financial year, and confirmed that Wednesday's syndication was also the last of this fiscal year.

Investors -- 86 percent of whom were British-based -- placed orders totalling 10.9 billion pounds, enough to push the yield in real terms below zero to a record low -0.8955 percent.

Ultra-long gilts typically attract British pension funds and insurers, which need assets to match their very long-term liabilities.

"(The syndication saw) very strong demand. It clearly shows there's continued underlying demand for longer-dated linkers driven by pension funds," said Nick Stamenkovic, fixed income strategist at RIA Capital.

"This is hardly surprising given the need for hedging in light of ever-increasing pension deficits."

While orders of 10.9 billion pounds far outstripped the amount sold, this was less than the 14.5 billion pounds of orders received at the syndicated launch of the same 2058 linker last July.

Proceeds from the re-opening of the gilt were expected to be around 4.6 billion pounds, the DMO said, reflecting how the gilt was trading at more than 50 percent above its face value.

Citi, JPMorgan (LSE: JPIU.L - news) , Nomura and UBS Investment Bank managed the sale.

It was the second time a linker syndication has produced a negative real yield since the DMO began to regularly sell debt by this method in 2009, the other being the launch of the 2058 linker in July last year.

Sovereign borrowers sometimes place bonds via a syndicate of banks as doing so helps them to reach a broader range of investors than through a traditional auction.

While the DMO bumped up its planned index-linked gilt sales via syndication by 1 billion pounds, it cut the amount planned via mini-tenders by the same amount to 1.2 billion pounds, marking the completion of the mini-tender programme this financial year.

In the cash market, gilt prices rose moderately. At 1611 GMT the 10-year gilt yield was down 3 basis points on the day at 1.46 percent.

The premium that 10-year gilts offer over the equivalent German Bund widened by around 1 basis point to 110.5 basis points.

March long gilt future 122.62 (+0.19)

June 2015 short sterling 99.38 (unch)

Dec (Shanghai: 600875.SS - news) 2015 short sterling 99.26 (-0.01)

10-year yield 1.46 pct (-3 bps)

-------------------KEY MARKET DATA--------------------------- Long Gilt futures Gilt benchmark chain Short Stg futures Cash market quotes Deposit rates Sterling cross rates UK debt speedguide -------------------KEY MARKET REPORTS-------------------------- Gilts Sterling Euro Debt Dollar U.S. Treasuries Debt reports --------------------GILT STRIPS DATA ------------------------- Gilt strips data All gilt strips Gilt strips IO Gilt strips PO ($1 = 0.6590 pounds) (Reporting by Andy Bruce; Editing by Susan Fenton)