U.K. Bonds Brace for Virus Debt Deluge Topping Crisis Highs

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(Bloomberg) -- The U.K. bond market looks set to face a flood of bond sales that dwarfs the current record for government borrowing set during the global financial crisis.

Britain will likely sell 270 billion pounds ($333 billion) of gilts in the fiscal year that started this month, to fund spending plans needed to combat the economic damage from the coronavirus, according to a Bloomberg survey of nine primary dealers. That would top the 2009-2010 high of 228 billion pounds, and mark an overrun of more than 100 billion pounds from last month’s initial estimate.

Bond issuance is seen surging as the U.K. struggles to fight the pandemic that has shut down huge swathes of the economy and forced citizens to stay mostly indoors. Economic output could shrink 35% this quarter, according to the Office for Budget Responsibility, the country’s fiscal watchdog.

U.K. Bonds Brace for Virus Debt Deluge Topping Crisis Highs

An increase in supply probably won’t raise the nation’s borrowing costs, given the Bank of England’s augmented debt-buying program. The institution, which boosted the plan by 200 billion pounds last month, still has plenty of room to buy, HSBC Holdings Plc estimates.

“Almost whatever the government borrows, the BOE will keep buying more for as long as the crisis is ‘live’,” said John Wraith, head of U.K. and European rates strategy at UBS Group AG. “It’s going to be a huge amount and could easily be revised higher in due course.”

NatWest Markets estimates the U.K. Debt Management Office will announce an upward revision in the annual borrowing target to between 230 billion pounds and 240 billion pounds Thursday. The total amount issued during the year could eventually rise to as high as 300 billion pounds, according to the bank.

Ten-year gilt yields were around 0.3% Tuesday, after climbing from a record low of 0.08% reached in March. U.K. inflation slowed in March, with consumer prices rising 1.5% from a year earlier, after a 1.7% gain in February.

©2020 Bloomberg L.P.

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