Bond dealers want UK bank plan funded with short gilts

British gilt dealers urged the Debt Management Office (DMO) to fund the government's bank recapitalisation programme predominantly with short-dated securities, minutes of a meeting showed on Tuesday.

The DMO met gilt dealers and investors on Monday to discuss how to fund the additional 37 billion pounds ($64.47 billion) which the government needs to raise to fund its capital injections into major British banks.

"There was a general preference for the programme to be financed by gilts rather than Treasury bills," the minutes noted.

"Regarding gilts, there was a general preference for a bias towards short-dated issuance but with some difference of emphasis about whether the focus should be in sub three-year or five-year issuance."

Market makers suggested the maximum size of short-dated gilt auctions be increased to 5 billion pounds and supported the introduction of one-year Treasury bills, the minutes showed.

With regard to medium-term issuance, support for reopening existing gilts, with the 4 percent 2016, 5 percent 2018 and 4.5 percent 2019 most often mentioned. At the long end, a reopening of the 4.25 percent 2055 gilt was the most requested.

There was "limited support" for index-linked issuance. Those that did want more issuance in this area suggested it should be long-dated and could be accommodated by issuing larger sizes in auctions that were already scheduled.

"It was pretty much as expected but I think we may need to see a back-up in yields to get all this absorbed," said one London-based gilts trader.

Details of the auction calendar will be published later on Tuesday.