Yield nears one-year low, UK government bond issuance faces major demand test.

The UK will test investors' willingness to subscribe through a bond sale, with the yield offered in this sale at the lowest level in the past year. The UK Debt Management Office (DMO) is issuing a bond with a coupon rate of 5.25% and maturity in January 2041 through banks. A similar sale of similar securities in October last year attracted over 14 times the amount of orders, ultimately raising 9 billion (approximately $12.1 billion). Sources revealed that preliminary indications show that the pricing is about 6.75 to 7 basis points higher than comparable bonds (UK Gilts). Currently, the yield on the UK 15-year government bond is hovering around 4.86%, a decrease of about 15 basis points from three months ago. In recent months, official government borrowing costs have significantly declined, as there are signs of cooling in inflation and economic growth, leading the market to speculate that the Bank of England will cut interest rates for the third year in a row. Swap trading suggests that there will be two 25 basis point rate cuts by December, bringing the base rate down to 3.25%, the lowest level since 2022. The UK will sell 15-year government bonds. Investors will lack some important reference information when participating in this bond auction. UK inflation data is expected to be released on Wednesday, with surveyed economists predicting that the year-on-year inflation rate for December has risen to 3.3%. Government borrowing data and the S&P Global Purchasing Managers' Index (PMI) will also be released later this week, which can reflect the operating conditions of private enterprises. Nevertheless, demand for 5-year and 10-year UK government bonds sold via auctions this month has remained strong. The excess subscription rates for these two types of bonds have increased compared to the previous month. The cost of syndicated underwriting is usually higher than auctions, but it allows the government to quickly raise large sums of funds while diversifying the investor base. The UK Debt Management Office plans to issue a new medium-term green bond through banks next month, which will be the last debt issuance through banks this fiscal year. The joint bookrunners for this new deal include Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and Lloyds Banking Group.