UK to auction £1.6 billion of index-linked treasury gilt 2035

The UK Debt Management Office (DMO) announced it will auction £1.6 billion of its 1⅛% Index-linked Treasury Gilt 2035 on October 1, 2025, as part of the government's 2025-26 financing operations. This issuance will be fungible with existing debt, increasing the total nominal outstanding for the security, which matures on September 22, 2035, to £12,657.6 million.

Analysis

The UK Debt Management Office (DMO) has announced a routine but notable financing operation, scheduling an auction for £1.6 billion of its 1⅛% Index-linked Treasury Gilt 2035 for October 1, 2025. This issuance is fungible, meaning it will be merged with an existing bond line, increasing the total nominal outstanding to £12,657.6 million and enhancing the security's market liquidity. As an index-linked instrument maturing in 2035, its value is directly tied to inflation, making the auction's outcome a barometer for market expectations of long-term UK inflation and real yields. The total potential issuance size could reach £2.0 billion due to a Post Auction Option Facility allowing for an additional 25% allocation. A specific condition of this auction is the exclusion of applications from members of the Approved Group of Investors, a deviation from standard procedure that could influence bidding dynamics. This operation is a scheduled part of the UK's 2025-26 financing program, indicating a planned increase in the supply of long-dated, inflation-protected government debt.

Key Decisions for Investors

• Fixed income portfolio managers should anticipate the additional supply of up to £2.0 billion in long-dated UK inflation-linked debt, which may exert minor short-term price pressure on this specific gilt and the broader linker curve.
• Investors seeking to hedge against or express a view on UK inflation should monitor the auction's demand metrics, such as the bid-to-cover ratio and clearing yield, as they will provide a key signal of market appetite for inflation risk.
• Relative value investors should note the unusual exclusion of the 'Approved Group of Investors' from this auction, as this could alter typical demand patterns and potentially create short-term pricing discrepancies against comparable gilts.