MNI UK Issuance Deep Dive: Gilt FY25-26 Outlook

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• The full document includes MNI's Spring Statement Review.
• The gilt remit was confirmed to be GBP299.2bln for FY25/26 (broadly in line with the FY24/25 outturn of GBP298.3bln). This was a little lower than the GBP303bln median sell side expectation.
• There is a higher proportion of shorts, lower proportion of longs and a larger unallocated bucket than both expectations and last year.
• The larger unallocated bucket is partly due to the “programmatic gilt tenders” that the DMO will introduce in FY25/26. One of the consequences is that with some of the tenders being conducted via off-the-run shorts, the proportion of short issuance is likely to be even higher than that already announced.
• It looks likely that CGNCR will need to be revised higher for FY24/25 which will likely result in the DMO tweaking its remit at 7:30BST on 23 April.
• We outline our expectations of new gilts, and syndication timings in the document.
• The CGNCR OBR forecasts for 2025/26 through to 2029/30 will add a combined GBP51.7bln to gilt issuance over 5-years. Only GBP7.9bln of this is in 2025/26, with double digit GBP billion increases in 2026/27 through to 2028/29.
• The OBR forecast that Chancellor Reeves would meet both of her fiscal targets: the “stability rule” with headroom of GBP9.9bln (the same margin as in the October Budget) and the “investment rule” by GBP15.1bln (slightly lower than the GBP15.7bln in the October Budget).
• There is a little-known rule tweak that will mean that from the 2026-27 fiscal year the stability rule allows a 0.5% of GDP deficit in 2029-30 for the target to be met (rather than purely a surplus). This is equivalent to a further GBP17.3bln of headroom in 2029-30 and we assume that the government will use this to boost defence spending to 3% of GDP by 2029-30 (it has noted that it is a “clear ambition” to 3%). Defence spending is currently forecast to rise to 2.5% of GDP by 2027-28.
• This means that gross gilt issuance is expected to remain north of GBP270bln for at least three more years after the upcoming 2025/26 fiscal year has concluded.
• The OBR notes that there is only a 54% probability the stability rule is met and a 51% probability that the investment rule is met. It notes that headroom would fall to around zero in the following scenarios:
  • GDP growth 0.1ppt lower than forecast in each forecast year.
  • Bank Rate and gilt yields 60bp higher across the forecast horizon (we note that 10/30-year gilts are already 20bp higher than the OBR assumed). A 3.75% terminal Bank Rate is assumed currently.
  • If the US implements 20ppt additional tariffs on the world, with the rest of the world retaliating with reciprocal tariffs.