MNI INTERVIEW: Switch Auctions Offer UK DMO Options in FY26/27

The UK Debt Management Office could use switch auctions from fiscal year 2026/27 to boost liquidity in certain gilt issues, including across outstanding benchmark maturities, the DMO’s CEO Jessica Pulay told MNI on Tuesday.

Speaking as the DMO announced a reduced overall gilt issuance programme for the upcoming fiscal year, Pulay said "the addition of this operation type doesn't necessarily mean that the facility will be used in ‘26/27," but "it reflects the feedback that we have received from the market and it adds a further tool to the toolbox".

Pulay noted the DMO previously used switch auctions in the early 2000s as an efficient way to boost liquidity and build the size of benchmark issues at a time of low gross financing requirements.

"If we were to deploy them in ‘26/27 -- and it's an if -- they will be used to promote liquidity in certain gilts, including benchmark maturities," she said.

The DMO will engage with market participants on this, "and we will update our operational notice with further details before undertaking any such operation".

The DMO said it will sell a total GBP252 billion in the 12 months from April, significantly lower than the GBP303 billion in the current fiscal year. 

PROGRAMME

Any use of switch auctions will be part of the DMO's overall issuance plan, which Pulay says is largely a product "of our own analysis of cost and risk".

"We take into account stakeholder feedback about market conditions and demand, including the ongoing declining structural demand for long-dated gilts from the domestic pension fund sector," Pulay noted. Overall longer-dated gilt sales look set to fall to just over 9% of the 2026/7 remit, down from 10.5% this fiscal year.

Pulay said that the issuance programme also needs to take into account "practical and operational considerations" and that "it's also consistent with adapting our remit in the course of this year".

The DMO will again make use of programmatic (or p-) tenders, which "have been successful and are a very important tool for us,” she said.

BILL ISSUANCE

With the reduction in the overall size of the remit for the current fiscal year, the percentage of T-bill issuance will rise as the actual number remains unchanged on the current year.

"The Treasury and the DMO initiated a public consultation earlier this year on the potential for expanding and deepening the Treasury bill market. Any decisions arising from this consultation will be communicated in the course of the 2026-27 financial year, which will also give the market sufficient time to prepare," Pulay said.

"If you look at the end of January 2026, you will note that the total Treasury bill stock outstanding was approximately GBP£97 billion. Now this represents around 30% of the current ‘25/26 gilt financing remit, however it is a significantly higher percentage of next year's financing remit.

Pulay noted that GBP97 billion is a stock number and the remit is a flow number, "but nevertheless, given that all of those one-month, three-month and six-month bills need to be refinanced in year, it's important, I think, to appreciate the implications of that". (See MNI INTERVIEW: UK Needs New Fiscal Metrics For Gilt Investors )

Green gilt issuance will increase in 2026/27 to GBP12 billion from GBP10 billion this year, underscoring the government's commitment to the sector, Pulay said.