UK sells GBP 750mln 4.25% 2040 Gilt via Tender: b/c 3.67x, Average Yield 5.640%

Small tender sales of this size are a different animal from the DMO's conventional auctions and syndications, and the coverage ratio needs reading in that light: the smaller the pot, the more easily a handful of motivated accounts can push bid-to-cover well above what a full-size auction of the same maturity would print, so a 3.67x is less informative about underlying demand than the average yield relative to prevailing secondary levels. On previous occasions, the tells from these tenders have been the tail versus the prevailing market yield and the split between when-issued positioning before and after the sale, rather than the headline cover. Duration at the 2040 point of the curve has historically been the part of the gilt complex most exposed to pension and LDI balance-sheet flows, and appetite there has tended to track the degree of de-risking pressure and real-yield levels rather than supply mechanics alone. Worth noting is whether the clearing yield comes through or above the prevailing secondary rate, since concessions on small taps have on past occasions leaked into the longer tenors. Follow-ons are any subsequent DMO scheduling and whether the tender is a one-off top-up or the start of a re-opened line.