Published by Global Banking and Finance Review
Posted on March 25, 2025
By Suban Abdulla and Andy Bruce
(Reuters) - Beset by weak growth and rising borrowing costs, Britain will bump up its issuance of government bonds in the coming financial year, and some primary dealers see the risk of a bigger increase, a Reuters poll showed on Tuesday.
The Debt Management Office's announcement for bond issuance in 2025/26 is due shortly after finance minister Rachel Reeves finishes delivering her budget update to parliament on Wednesday, a pivotal moment for gilt investors.
The survey of 14 primary dealers - banks mandated by the government to help create a market for its debt - showed the DMO is likely to announce bond issuance for 2025/26 of around 304 billion pounds ($390 billion), up from its current remit of 296.9 billion.
Forecasts ranged from 295.5 billion pounds to 321 billion pounds.
Such a remit would be the second-largest on record after the 2020/21 year when the COVID-19 pandemic necessitated enormous government support measures for the economy.
In October the DMO projected a gross financing requirement, which includes gilts, net T-bill issuance and funds raised from the government's National Savings and Investment retail arm, of 299.6 billion pounds for 2025/26.
With Britain repeatedly coming up against the limits of its fiscal rules - and with it the confidence of investors - the announcement from Reeves and new forecasts from the Office for Budget Responsibility will be watched closely by the gilt market, alongside the DMO's 2025/26 announcement.
Comments from primary dealers underlined the sense of changeable investor confidence surrounding gilts.
Adam Dent, chief UK interest rates strategist at Santander, said the DMO announce an issuance figure below 300 billion pounds on Wednesday for psychological reasons, even if they end up revising planned issuance higher next month.
"Keeping gross sales below 300 billion will at least generate less dramatic headlines and support a more confident market reaction on the day of the announcement, even though it would be almost exactly the same as the recent, relentless pace," said Dent, who expects a figure of 299.5 billion pounds.
Other primary dealers saw the risk of a larger figure.
On Tuesday, Citi revised up its issuance forecast to 321 billion pounds from 307 billion pounds previously on the back of higher-than-expected government borrowing data last week.
"The fiscal position has become increasingly detached from the re-pricing of interest rates," said Benjamin Nabarro, chief UK economist at Citigroup.
"An overextended fiscal position has in turn fed back into higher and more volatile funding costs. A rebalancing (in the economy) appears to be in order."
The median poll forecast showed the DMO is likely to increase net T-bill issuance by around 5 billion pounds in the next financial year.
Across the board, analysts expected the DMO to skew its issuance plans increasingly towards shorter-dated gilts and away from long-dated bonds, which have become increasingly expensive to issue.
On Tuesday, the 30-year gilt yield rose to its highest level since mid-January, when they hit more than 25-year highs amid a global sell-off of government bonds, prompted in part by the economic agenda of U.S. President Donald Trump.
2025/26 forecasts, bln stg
Gross gilt Net T-bills
issuance
MEDIAN 303.6 5
Average 305.2 6.5
High 321 15
Low 295.5 0
Count 14 11
Bank of 300 12.5
America
Barclays 295.5 3
BNP Paribas 301.7 10
Citi 321 0
Deutsche Bank 302 5
HSBC 300 7.2
JPMorgan 305
Lloyds Bank 315 3.5
Morgan 305 5
Stanley
NatWest 302.1 5
Markets
Nomura 305 5
RBC 308.5
Santander 299.5 15
UBS 312
($1 = 0.7740 pounds)
(Writing by Andy Bruce; Editing by Hugh Lawson)
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