Britain’s government should think carefully before significantly expanding issuance of short-dated Treasury bills due to the extra refinancing risk, the head of the country’s debt agency told a parliamentary committee on Wednesday.
Last month Britain’s finance ministry launched a consultation into financing more of the country’s borrowing through T-bills, which have a maturity of up to a year, rather than longer-dated government bonds.
T-bills are on track to account for just 11 billion pounds of net issuance this financial year, compared to 304 billion pounds of gilt sales, and a much lower proportion than in other countries such as the United States.
While T-bills typically have a lower interest rate than longer-dated government bonds, they mature and need to be resold to investors far more often – making them more vulnerable to market turmoil and exposing the public finances more rapidly to rises in Bank of England rates.
“Our debt management objective is to achieve value for money over the long term… and I stress over the long term,” Debt Management Office Chief Executive Officer Jessica Pulay told parliament’s Treasury Committee when asked about her advice to the finance ministry.
“It is very important to consider issues such as refinancing risk, as well as other risks such as liquidity risk and execution risk,” Pulay said, adding: “That is something that we, as a long-term borrower, need to consider very carefully.”
Sharply rising costs for 20- and 30-year borrowing led the DMO to significantly scale back issuance of this debt over the past few years, but it has increased issuance of medium-dated, not just short-dated, bonds to compensate.
The DMO will set out its issuance plans for the 2026/27 financial year on March 3.
Asked if Alphabet’s sale of 5.5 billion pounds of 100-year sterling debt on Tuesday pointed to revived investor appetite for ultra-long sterling bonds, Pulay said she viewed the sale as “a slightly special example” which did not offset a long-term decline in pension funds’ need for long-dated gilts.
(Reporting by David Milliken）
