The head of the agency that issues British government bonds said there would be an “important shift” away from long-dated debt in the coming financial year in response to rising borrowing costs and reduced investor demand.
The United Kingdom Debt Management Office announced on Wednesday that it would issue 299 billion pounds ($385 billion) of government bonds this year – the second highest amount on record.
But the share accounted for by long-dated conventional gilts with a maturity of more than 15 years will drop to 13%, the lowest since 1990 and down from nearly 20% this financial year.
“The DMO is going to continue … a well-diversified programme of issuance across all maturity sectors. But there is an important shift in the proportions this year,” DMO Chief Executive Jessica Pulay said.
“This reflects our analysis of cost and risk for the exchequer, and this also takes into account market feedback on declining structural demand for long-dated gilts,” she added.
Britain has the longest average maturity debt stock of any Group of Seven economy, at 14.4 years at the end of 2024.
This reflects historic demand from British pension funds and life insurers which has faded significantly in recent years, prompting bond investors and dealers to recommend the DMO scale back long-dated issuance at a faster pace this year.
Gilt prices rose sharply after the DMO announcement which showed slightly lower-than-expected planned overall gilt sales for 2025/26 – with 30-year gilts gaining the most.
“I like it. There was no need for the DMO to issue so many longer-dated gilts,” said James Athey, a fixed income manager at UK-based fund manager Marlborough.
Thirty-year gilt yields hit their highest level since 1998 in January at 5.47% and at 5.30% still command a greater premium over short-dated gilts than is the case with U.S. bonds.
“In a period of heightened uncertainty investors are increasingly looking to the short end of the curve as a safer play,” Athey said.
SHIFTING SHORTER
Tilting issuance towards short-dated conventional gilts with a maturity of up to seven years – which will account for at least 37% of issuance in the coming year, up from 35% before – would also make it easier to hold larger auctions, Pulay said.
Long-dated gilts are riskier for most investors than shorter maturities, so auctions for the former must generally be smaller.
Pulay also highlighted an increase in the “unallocated” portion of gilt issuance which stands at 9% at the start of the 2025/26 financial year compared with 4% at the start of 2024/25.
This would allow the DMO to respond to in-year changes in market demand for gilt “on a more regular and active basis”, she said.
Britain has generally attracted high demand for gilts at auctions and at bond syndications – several of which have attracted record volumes of orders this year, including for long-dated conventional and index-linked gilts.
“High-quality institutional demand for long maturity gilts continues to be present,” Pulay said.
She also played down the risk that Britain would find it harder to sell debt as historically low issuers such as Germany ramp up borrowing to fund greater defence and infrastructure investment.
“Sterling remains one of the leading global reserve currencies, and … the results of our operations over the course of 2024-25 demonstrate very visibly the continued demand for sterling in general and for the gilt product in particular,” she said.
($1 = 0.7764 pounds)
(Additional reporting by Naomi Rovnick）
