Mar 7 2024: The head of the UK’s debt agency suggests that there is currently diminished value in issuing long-dated gilts compared to shorter or medium-dated bonds as the country faces its second-highest borrowing needs on record.
In an announcement by the United Kingdom Debt Management Office (DMO), plans were unveiled to issue £265 billion ($338 billion) of government bonds in the 2024/25 financial year, marking an increase from the £232 billion issued in the current year.
Robert Stheeman, CEO of the DMO, described the new remit as “substantial,” emphasizing efforts to design it in a manner that enhances the likelihood of smooth delivery.
These heightened issuance levels follow the annual budget projections outlined by Finance Minister Jeremy Hunt, which forecast public debt to rise to £3.0 trillion by 2028/29.
The DMO now faces competition from the Bank of England, which plans to sell £100 billion of gilts annually from its bond portfolio amassed through quantitative easing.
While long-dated bonds have historically been prominent in British government debt issuance, the upcoming program allocates the lowest percentage to long-dated bonds in the DMO’s history, representing 18.5% of issuance.
Stheeman noted a gradual decline in demand for long-dated gilts, partly attributed to structural changes affecting pension funds. He emphasized the importance of aligning demand focus with value for money.
Factors favoring short and medium-dated debt issuance include a broader investor base and a steepened gilt yield curve since July, making longer-dated debt relatively costlier to issue.
Currently, benchmark 30-year gilts yield 4.45%, half a percentage point more than five-year gilts, reflecting shifting demand dynamics in the gilt market.
These developments prompt the UK to reassess its debt issuance strategy, reflecting changing market conditions and investor preferences.
