POLL-UK set to add to heavy gilt sales in coming financial year

Credit: REUTERS/HOLLIE ADAMS

By Andy Bruce and Suban Abdulla

March 5 (Reuters) - Britain will ramp up its sales of government bonds in the coming financial year, reflecting the need to roll over maturing gilts but also underscoring the constraints faced by finance minister Jeremy Hunt who is due to announce his budget on Wednesday, dealers taking part in a Reuters poll said.

Hunt will try to use his pre-election tax and spending statement to boost Prime Minister Rishi Sunak's flagging fortunes by cutting taxes.

But he must avoid adding to bond investors' worries about the public finances with the price of British government borrowing already falling by more than that of peers and huge amounts of debt scheduled to hit the market.

The poll showed that the median forecast among banks that can bid directly at government bond auctions - known as primary dealers - was for gilt issuance of 258.4 billion pounds ($328.06 billion) in the 2024/25 financial year, up from the 237.3 billion pounds 2023/24 remit.

If the Debt Management Office (DMO) sells that many gilts in 2024/25, it would be the second-heaviest year for issuance on record after the 2020/21 financial year when Britain was hit by the coronavirus pandemic.

The predicted increase largely reflects how the volume of maturing gilts that need to be replaced is due to increase to 140 billion in 2024/25 from 117 billion in 2023/24, rather than any expectation that Hunt will announce major giveaways to voters or businesses on Wednesday.

"The takeaway for markets is that we are still in a period of sustained, substantially high gilt issuance," said Imogen Bachra, NatWest's head of UK rates strategy.

Heavy issuance plans would weigh on British gilts more so than for bonds sold by other governments, Bachra said, citing the Bank of England's separate bond sales and weakening demand from pension funds for long-dated debt.

The BoE plans to unburden itself of 100 billion pounds of gilts between October 2023 and September 2024 through a combination of active sales and allowing old bonds to mature, as it presses on with its quantitative tightening (QT) programme.

Nomura economists said the gilt market will have swallowed more bonds in 2023/24 and 2024/25 - after taking into account the BoE's quantitative easing and tightening policies - than during the previous nine years combined.

"The question is: what price will investors demand in order to hold gilts?," they said in a note to clients.

UK 10-year gilt yields GB10YT=RR are up around 53 basis points (bps) this year. U.S. and German yields have risen roughly 33 bps each.

The poll showed the DMO will again skew issuance towards short-dated bonds, which for a third year running are expected to account for more than a third of all gilts issued in 2024/25.

Britain is also likely to raise extra funds by increasing T-bill issuance by 10 billion pounds with a further 7.5 billion pounds coming from National Savings and Investment (NS&I), the government's consumer savings arm.

Taking expected gilt sales, T-bill and NS&I funding together, the outlook in the Reuters poll for the government's gross financing requirement in 2024/25 is close to the DMO's own expectation published in November of 277 billion pounds.

The gross financing requirement is an estimate of the funds the government needs to raise to plug its budget deficit and roll-over bonds that are due to mature.

2024/25

GROSS GILT ISSUANCE

Of which:

NET T-BILL ISSUANCE

NS&I

(bln stg)

Short (%)

Med (%)

Long (%)

IL (%)

Unalloc (%)

(bln stg)

(bln stg)

MEDIAN

258.4

37

30

19

10

5

10

7.5

AVERAGE

257.6

36.8

30.1

18.9

10.3

5.3

10.3

9.4

MAX

271.7

38

33

21

11.5

7

29.9

22.5

MIN

225.5

35

28

16

9

3.9

4.4

6

COUNT

13

12

12

12

12

10

13

11

Banco Santander

255

38

31

20

11

6

10

11

Barclays

225.5

35

33

16

9

7

15

10

BNP Paribas

271.7

37

29

18

10

6

5

7.5

Citi

263.5

35

32

18

10

5

10

7.5

Deutsche Bank

271.4

37

28

20

10

5

10

HSBC

256

36.7

28.7

19.7

10.9

3.9

10

22.5

Lloyds Bank

261

36

30

19

10

5

5

6

BofA-Merrill Lynch

240

37

31

17

10

5

29.9

Morgan Stanley

257

36

29

19.5

10

5.5

10

9

NatWest

258.4

38

29

18

10

5

10

6

Nomura

265

4.4

6

RBC

266

37.5

30

21

11.5

10

7.5

UBS

258

38

30

21

11

5

10

($1 = 0.7876 pounds)

(Reporting by Andy Bruce and Suban Abdulla Editing by William Schomberg and Ros Russell)

((andy.bruce@thomsonreuters.com; +442075134461; Reuters Messaging: @brucereuters))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.