By David Milliken
LONDON, November 16 (Reuters) – Bond brokers expect Britain to scale back its debt issuance plans for the current financial year, from those set just after September’s ‘mini-budget’, but see a big jump in shows next year, according to a Reuters poll on Wednesday.
Finance Minister Jeremy Hunt will outline new borrowing plans on Thursday to bolster confidence in Britain’s public finances, after his predecessor Kwasi Kwarteng’s September 23 statement led to the resignation of Liz Truss as Prime Minister and forced the Bank of England (BoE) to intervene in the bond market.
Banks that can bid directly at UK government bond auctions – known as golden market makers (GEMMs) – on average expect Britain to issue 185 billion pounds ($221 billion ) of bonds in 2022/23, compared to 194 billion pounds in pencil. by the UK Debt Management Office (DMO) on 23 September.
However, in the 2023/24 financial year, gilt issuance is expected to climb to £238 billion, according to the survey’s median forecast, the second highest on record after the £486 billion in issuance in 2020/ 21 to fund COVID-19 support measures.
“This will have lasting implications for the market,” said Theo Chapsalis, head of UK rates strategy at Morgan Stanley.
“While we look to slower growth, which would normally be positive for gilts, the combination of high supply and persistent high inflation will still make gilts a less attractive asset in the fixed income space. “, he added.
The scale of UK government bond issuance becomes even more striking when compared to the fact that the BoE is , in stark contrast to previous periods of massive issuance when the BoE’s quantitative easing was in full swing. .
Adjusting for BoE sales and maturing gilts, RBC estimates there will be 228 billion pounds of net issuance next year, almost 100 billion pounds more than the previous record high of 130 billion. pounds in 2010/11, after the global financial crisis.
The downward revision to gilt emissions for the current fiscal year reflects the reversal of many Kwarteng tax cuts and a drop in natural gas prices that reduces the near-term cost of temporary energy subsidies.
Jamie Searle, rates strategist at Citi, said the market would be more focused on issuance plans for the next fiscal year, rather than beyond.
“Looks like there shouldn’t be too many surprises, but the gilt market remains feverish, and even small news could create outsized reactions,” he said.
The DMO was most likely to reduce gilt issuance in the short to medium term, given that was where most of the September increase was concentrated, he added.
Net issuance of Treasuries remained unchanged at 40 billion pounds in September, according to the median forecast of the survey.
UK 10-year gilt yields GB10YT=RR were trading around 3.38% on Tuesday – just below their level before the September 23 statement and well below the 14-year high of 4.632% reached on October 12.
Issuance of gilts is separate from Public Sector Net Borrowing (PSNB), the main measure of borrowing provided by the UK Office for Budget Responsibility.
Here, GEMMs expect the PSNB, excluding public sector banks, to hit a median of £187bn, nearly double the £99bn forecast by the OBR in March. Next year it is expected to fall to 142 billion pounds, against an OBR forecast of 50.2 billion pounds.
Gross gilt emissions 2022/23
Gross gilt emissions 2023/24
Bank of America
($1 = 0.8383 pounds)
(Reporting by David Milliken; Editing by Alex Richardson)
((email@example.com; +44 20 7513 4034;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.