RPT - MNI INTERVIEW: UK Gilt Issuance Driven By Demand -DMO

(Repeats article first published on Nov 26)

Shifting investor trends at the front-end of the yield curve remains a key factor behind the ongoing shift in issuance to short- and medium-dated gilts, the head of the UK's Debt Management Office told MNI Wednesday.

The issuance calendar is driven by "our observation of the shifting trend in investor demand, which remains stronger relatively at the shorter maturities to the longer maturities," Jessica Pulay said in an interview after the publication of the revised 2025/26 financing remit. 

 "We have announced an increase to the net financing requirement to a new total of GBP314.7 billion, an increase of 5.6 billion - the second largest net financing requirement in the DMO’s history. That requires gilt issuance to be diversified across maturities and types of gilts," Pulay said.

This, Pulay said, has led to increased supply in absolute terms across the short and medium sectors relative to the remit revision published in April, along with a small increase in absolute terms in the amount of index-linked gilts. 

"We have increased the short-dated issuance to GBP133.5 billion. So that's a GBP15.6 billion increase. Proportionately, that's 4.5% up to 44%. We have also increased mediums in absolute terms and the proportional increase is also up from 30% to 33.6%," she said.

Depite the overall increase in gilt issuance, Pulay highlighted the overall decline in the number of auctions in the calendar year, due to larger auction sizes at the front end, good take up of the post-auction option facility and the new P-tenders.

"We are actually reducing the number of auctions. We had 70 auctions in the calendar planned in April, and we now have 64. We're also taking the number of syndications down from eight to seven, as we are dropping a previously planned index linked gilt syndication, which was scheduled to take place in Q4," she said. (See MNI INTERVIEW: Short Gilt Shift On Cost And Risk Analysis -DMO)

T-BILL CONSULATION

The DMO also announced a GBP1 billion increase in Treasury-bill issuance for debt management purposes to GBP11 billion

"We are upsizing T-bills by 1 billion to GBP11 billion. We also use T-bills for cash management purposes. Outstanding T bill stock is approximately GBP110 billion at the moment, issuing one month, three months and six months regularly every Friday. So that's equivalent to roughly one third of the financing remit now," Pulay said.

"It remains very important that we have sufficient capacity to utilise T-bills, both for debt- and cash-management purposes," she added. 

Pulay confirmed that the DMO and the Treasury are undertaking a joint consultation on Treasury bills and the wider T-bill market, which is expected to be launched in January 2026, with further details to be announced in due course.

"We will want to take into account detailed market feedback as a result of that consultation, so we shouldn't take away any direction of travel about future finance agreements at this point -- but we look forward to reflecting on the feedback from market participants," she said. 

GREEN GILTS GO NUCLEAR

Pulay confirmed that green gilt issuance will be unchanged from the original remit at GBP10 billion.

"We're raising GBP10 billion. We have published a revised UK green financing framework which modifies the existing green framework to include nuclear energy for power generation in the list of eligible expenditures,” she said.

"We expect to launch a syndication in the upcoming quarter and more details will emerge around that in due course," she said.