UK Unveils Bigger-Than-Expected £241 Billion Bond-Sale Plan

The market has shown it can handle it so far, added Megum Muhic, a strategist at the bank.
UK Unveils Bigger-Than-Expected £241 Billion Bond-Sale Plan
UK Unveils Bigger-Than-Expected £241 Billion Bond-Sale Plan

The UK plans to sell more gilts than anticipated in the coming fiscal year, with a higher-than-average proportion slanted toward short-maturity notes that appeal to a broad pool of investors.

The Debt Management Office said it will issue £241.1 billion of government bonds, compared with the £233 billion estimated by strategists in a Bloomberg survey. Yields held an earlier drop following the announcement, with the rate on 10-year bonds around 16 basis points lower at 3.32%. 

The debt target means supply in the year ahead will be heavy, particularly as the Bank of England sells bonds from its balance sheet as part of its so-called quantitative tightening program. At the same time, yields are so high they’re luring new investors to the gilts market, helping ease concern the debt deluge will prove too large to digest. 

The 4% Yield on UK Bonds Is Luring Investors Who Never Buy Gilts

The plans represent the highest net supply of gilts — including previous purchases and sales by the BOE — in records stretching back to the fiscal year ended 2010, according to calculations by RBC Capital Markets. Still, the total amount on a quarterly basis is similar to what investors have become accustomed to in recent months. 

The “market has shown it can handle it so far,” added Megum Muhic, a strategist at the bank. “This isn’t a step up in the rate of net sales for the market to digest.”

Bonds due in seven years or less will account for 36% of the UK government’s borrowing, according to the DMO’s plan, compared with a historical average of 27%. It’s a shift analysts had anticipated given uncertainty over the depth of demand for longer-term debt from pension funds and a preference among international investors for lower-duration gilts.

The DMO also said it would boost its net sales of Treasury bills, which mature in 12 months or less, by £5 billion.

Retail Investors

The government will also tap the National Savings & Investments program, which targets household savings. It has a net financing target of £7.5 billion for 2023-24, with a range of £3 billion above or below that amount. That is a lower amount than some analysts had forecast would come from retail investors.

In a recent consultation with the debt agency, some investors had advised the DMO to raise more funds from retail investors to ease pressure on the gilt market. 

“It may well be that the DMO may not want to outcompete retail banks, given that deposit rates and savings rates are going to be that much higher” compared with the last ten years, said David Page, head of macro research at AXA Investment Managers.

UK DMO Plans About £27b of Bonds Via Syndication in 2023-24

Breakdown of planned gilt sales by maturity:

  • Short-dated conventional gilts £86.7b
  • Medium-dated conventional gilts £65.3b
  • Long-dated conventional gilts £50.9b
  • Index-linked gilts £26.2b

--With assistance from and .

(Updates with comments from fourth paragraph onwards.)

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