U.K. Plans Record Bond Sales With Outlook Clouded in Uncertainty
U.K. Lifts Bond Sales to Record to Fund Coronavirus Recovery
(Bloomberg) --
The U.K. will shatter its record for government bond sales this year as the country battles the economic fallout from the coronavirus.
On Monday, the Debt Management Office said it will sell another 50 billion pounds of gilts ($61.9 billion) in the fiscal year through August, extending its issuance plan by just one month. A spokesman for the DMO said it was only possible to provide details on an extra month due to the “significant uncertainty” surrounding the pandemic.
The extension will bring issuance through August to 275 billion pounds -- already dwarfing the full-year record reached during the height of the financial crisis. A survey of primary dealers forecast 412 billion pounds of issuance for the year.
After spending huge amounts to protect the U.K. through the lockdown, the government looks on course to commit even more money to aid the recovery, in plans that may be laid out in coming days.
While the Bank of England is helping to keep bond yields in check through its asset-purchase program, the latest figures will likely add to concern over the extra borrowing, which has already pushed the national debt above the size of the economy for the first time since the 1960s.
“The one month extension reflects the fact that the government’s financing requirement for the full year remains subject to significant uncertainty given that the extent and duration of the economic impact of COVID-19 and the associated policy support provided by the government continue to evolve,” a DMO spokesman said. “We are being as transparent as possible.”
The remit for September to November will be announced before the end of July.
No Austerity
More insight into the government’s plans could be imminent. Before a key speech on Tuesday, Prime Minister Boris Johnson has already vowed to spend large sums on hospitals, schools and roads to jump-start the economy, while Chancellor Rishi Sunak is also due to outline his next steps.
U.K. bonds, which rallied to touch record-low yields in shorter maturities this month, slipped to push 10-year yields up one basis point at 0.18%. The pound steadied at $1.2339, after rising as much as 0.4%.
The DMO said that further details of the gilt operations would be announced Friday. It doesn’t plan to sell syndicated debt over the period, which has been an increasingly popular way for governments to raise large amounts of cash.
The DMO had previously only given issuance plans for the four months through July, which stood at 225 billion pounds, just three billion pounds short of the previous record in 2009-10.
“It’s a bit higher than I expected,” said Adam Dent, U.K. rates strategist at Banco Santander SA. “The government’s cash needs should be front-loaded.”
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