British government bond issuance will fall closer towards pre-pandemic norms in the coming financial year, when the market’s biggest buyer over the last decade – the Bank of England – will move to the sidelines, according to a Reuters poll of primary dealers.
The Debt Management Office’s 2022/23 gilt issuance remit is likely to show about 147 billion pounds ($193.8 billion) of bond sales, compared with 194.8 billion pounds in the current year, according to the median forecast in the poll.
The remit is due to be published on Wednesday, shortly after finance minister Rishi Sunak delivers his Spring Statement budget update to parliament.
British public borrowing with just one month left in the current financial year was less than half its level from a year earlier, official data showed on Tuesday, putting Sunak in a fairly comfortable spot as he prepares new forecasts.
Gilt issuance in the five financial years leading up to the COVID-19 pandemic averaged about 125 billion pounds a year, before desperate measures to prevent the collapse of Britain’s economy pushed bond sales to a record 485.8 billion pounds in 2020/21.
For the first time since 2009, the BoE will not be an active buyer via its quantitative easing (QE) programme, through which it ended up owning more than half the conventional gilts in issue in exchange for newly created central bank reserves.
The BoE has already started to reduce its 875 billion pound stock of gilts by allowing maturing bonds to roll off its balance sheet and has said it will consider active sales when the Bank Rate reaches 1%, from 0.75% presently.
A BoE survey of investors last week showed they expect active sales to start later this year.
“Despite the sequential decline in the gilt remit, the overall issuance to the private market – gross supply minus gross QE – is expected to show the largest such increase in the past decade,” UBS strategist Rohan Khanna said, citing a figure of around 80 billion pounds.
Primary dealers, or banks appointed by the government to help create a market for its debt, stressed uncertainty in their predictions about the outlook for government finances.
Rampant inflation pressures, increases in both taxation and borrowing costs, and the fallout from Russia’s invasion of Ukraine on global commodity and energy prices make economic forecasting a tricky task right now.
The amount of overfunding – funds from debt sales that exceeded the government’s financing need in 2021/22 – that will be carried over into 2022/23, and how much of that Sunak might on Wednesday use to help households facing the biggest squeeze in real incomes in at least 30 years, are additional uncertainties.
Forecasts for the 2022/23 remit ranged between 108.0 billion pounds and 211.2 billion pounds.
The poll suggested the DMO will plan to issue a similar mix of short, medium, long and index-linked gilts as in the current financial year.
The budget deficit in 2022/23 looks likely to fall to around 100 billion pounds from about 161 billion pounds forecast for the current financial year, the poll showed.
