U.K. ISSUES ONE BILLION STG BOND TRANCHE

  The Bank of England said it was taking
  onto its books a further one billion stg tranche of 8-3/4 pct
  Treasury Loan stock due 1997, payable 40 stg pct on
  application. The stock was issued to the Bank at 96.50 stg pct
  and will be available for dealings from March 11, with the
  remainder of the amount payable on May 5. The Bank said the
  bonds would yield 9.28 pct at the issue price and would be free
  of tax to residents overseas. The issue would be designated
  8-3/4 pct Treasury Loan 1997 "B."  A further 100 mln stg was
  reserved for the National Debt Commissioners.
      The market dropped by up to 1/2 point following the Bank's
  announcement, with the Treasury 13-1/2 pct stock due 2004/08
  quoted one full point lower at 134-12/32 stg pct around 20
  minutes after the news.
      Dealers said the announcement had to be viewed against the
  backdrop of intense pressure for lower U.K. Interest rates
  which had built up over the past two weeks as a result of
  sterling's strength.
      The Bank this morning finally signalled it was prepared to
  see lower rates and U.K. Clearing banks this afternoon
  announced cuts in their base lending rates to 10.5 pct from 11
  pct.
      The Bank had initially been reluctant to countenance a rate
  cut because, dealers said, the authorities had wished to delay
  a reduction until around the time of the U.K. Budget on March
  17, thereby preserving the full impact of Chancellor of the
  Exchequer Nigel Lawson's package of measures.
      However, in the face of sterling's apparently inexorable
  climb, the authorities today decided to cede to pressure and
  allow a half-point cut.
      Today's one billion stg tap issue was viewed by the market
  as a move by the Bank to eradicate hopes for a further early
  rate cut which might arise as a result of strong sterling.
      Most market participants believe that Lawson will now
  foster a further half point interest rate reduction at the time
  of the budget, although one or two said they would not be
  surprised to see a full point decline at this stage.
      Dealers noted that as part of the authorities' attempts
  last week to ease pressure for lower rates, the Bank had issued
  a one billion stg tap stock with a view to subduing the
  Government bond market.
      To the surprise of most participants, the issue was sold
  out within hours of becoming available for trading and the
  market pushed on to register further sharp gains.
      Dealers said that at this stage it seemed unlikely that the
  issue announced today would be absorbed by the market as
  rapidly as last week's.
      However, they noted that although sterling had edged down
  from its highs following the base rate cut, it had still closed
  on a trade-weighted basis at 72.4, well ahead of Friday's final
  71.8 and only just beneath the peak of 72.5 touched at 1300
  GMT.
  

