U.K. Bond Sales Seen at Almost Double Financial Crisis Peak

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The U.K. will sell nearly twice as many bonds than it did during the height of the financial crisis, according to estimates of primary dealers.

Gilt issuance for the fiscal year that began in April is set to climb to about 450 billion pounds ($567 billion), with the Debt Management Office’s funding needs for September to November totaling 115 billion pounds, data from seven banks show.

U.K. Bond Sales Seen at Almost Double Financial Crisis Peak

While issuance is seen dwarfing the 228 billion-pound record set in the fiscal year that ended in April 2010, the effect on gilt yields is likely to be muted. Barclays Plc estimates the extra supply to be almost entirely offset by the rate of purchases from the Bank of England.

“It means that the market could be relatively well balanced going forward,” Barclays strategist Moyeen Islam wrote in a note to clients. “A worsening of the economic outlook that would need more fiscal support and possibly further asset purchases may push the market to a new equilibrium level, but a significant steepening seems unlikely.”

The yield on 10-year bonds is around 0.16%, close to a record low touched in March.

The outlook for the U.K. economy is clouded by the coronavirus pandemic and the end of the Brexit transition. The U.K’s Office for Budget Responsibility predicts the budget deficit could swell up to 21% of output this year and sees annual borrowing of 322 billion pounds.

Bank of England policy maker Silvana Tenreyro said Wednesday that she expects the U.K. economy to lose steam after an initial bounce, and is ready to vote for more monetary stimulus if the economy needs it. She added that the use of negative interest rates as a policy tool is a live issue for the bank.

The DMO is due to announce borrowing plans for September through November at 7:30 a.m. on Thursday.

What’s Already Been Announced
  • The DMO in June said it would sell another 50 billion pounds of gilts until the end of August. It only provided plans for a month due to the “significant uncertainty” surrounding the pandemic
  • That brought its plans for the fiscal year through August to 275 billion pounds, an all-time high
  • The DMO had previously only given issuance plans for the four months through July, which stood at 225 billion pounds, just 3 billion pounds short of the previous record in 2009-10

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