MNI Market Analysis: UK Funding: Gilt Demand / Balance Sheets

For the full document, pulling together considerations in UK funding markets and a full preview ahead of today's STR operation, click here.

• We have focused a lot on the supply-side impacting UK funding markets and we draw together some of our recent coverage on that topic in this document. However, we also look at the demand side of the equation and an increase in long gilt positioning may also have been a contributing factor to the most recent increase in funding costs and RONIA.
• Last week, the extent of the demand for repo funding may not have been clear at the time market participants were bidding in the STR (given that gilt positions may have been established during or after the bidding window for the operation closed).
• The other consideration when looking at today’s STR operation will be usage of the ILTR operation. On Tuesday gross takeup in the operation was GBP6.073bln, leading to a net increase of GBP5.518bln (the third highest net increase on record – the highest being the week of the first Covid lockdown and the second highest two weeks ago aligned with peak TFSME repayments).
• We look at all of these factors in much more detail in the full report.