The UK kept its bond issuance plans little changed for the current fiscal year, surprising a market that was bracing for a larger cut and weighing on gilts.
The Debt Management Office said Wednesday it will issue £237.3 billion ($296 billion) of government bonds in the fiscal year 2023 to 2024, broadly in line with the £237.8 billion plan announced in April. That compares to the £224 billion estimated by banks in a Bloomberg survey last week.
The UK also slashed the amount of bills it plans to issue by £10 billion, catching out traders who expected a reduction in long-dated bonds. Ten-year gilts erased an earlier advance, also pressured by tax cuts announced by the government, which risks fueling concern about inflation.
“The announcement is bearish for bonds” as there’s more stimulus coming while inflation is still well above the Bank of England’s target, said Althea Spinozzi, senior fixed-income strategist at Saxo Bank A/S.
The nation’s public finances are holding up better than expected thanks to a surprise boom in tax receipts, spurring speculation the government would be more aggressive in slashing its debt sale target. The UK’s Chancellor of the Exchequer Jeremy Hunt on Wednesday announced cuts to personal and business taxes as he tries to boost the economy.
Read more: UK’s Hunt Targets £20 Billion Investment Lift With Tax Cuts
The DMO’s new plan was also higher-than-forecast because the UK refrained from increasing the amount of debt it plans to issue to retail investors. Most banks surveyed by Bloomberg were expecting an increase.
The financing target of National Savings & Investment, the state-owned bank that offers savings products to Brits, remained at £7.5 billion. The median of eight respondents were forecasting a £10.3 billion target.
Investors may not have anticipated the DMO would focus on cutting bill sales, according to Robert Stheeman, the agency’s chief executive officer.
“If you look historically, we have often used the T-bill program as a sort of buffer” to “maintain as much as possible the overall size and shape of the original remit,” he said.
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