UK Bond Dealers Forecast Modest Rise in Debt Issuance After Latest Budget
Outlook for UK Government Debt Issuance Following the 2024 Budget
By David Milliken
LONDON, Oct 23 (Reuters) - British government bond dealers expect only a small rise in debt issuance this year after finance minister John Healey's first annual budget on October 28, but see higher borrowing coming down the track, according to a Reuters poll.
Mid-year revisions to issuance plans by the UK Debt Management Office are also likely to see a further shift away from sales of long-dated gilts, bringing them to their lowest share of total issuance since 1990.
Primary Dealer Expectations and Issuance Projections
A Reuters poll of all 15 wholesale primary dealers in British government bonds showed a median expectation that the DMO will revise up its issuance plans for the 2026/27 financial year – last updated in April – by £3.4 billion to £249.6 billion ($335 billion) after next week's budget.
"Gilt market participants should not expect too much in the way of fireworks," said Moyeen Islam, fixed income strategist at Barclays.
"Attention will fall on the changes to the composition of issuance and the degree to which the profile for the medium-term gross financing requirement incorporates a credible fiscal strategy," he added.
Net issuance of short-dated Treasury bills – which the DMO often uses to smooth out in-year changes in financing needs – is expected to double to £10 billion from £5 billion, according to the median forecast.
Shift Away from Long-Dated Gilts
LONG-DATED ISSUANCE HEADING FOR LOWEST SHARE SINCE 1990
Meanwhile, issuance plans for long-dated government bonds with maturities of more than 15 years look set to be scaled back further to their lowest since 1990, making up less than 7% of issuance, down from 11% last year and over 30% in 2021.
Twenty- and 30-year gilt yields hit their highest since 1998 earlier this month as part of a global selloff driven by worries about high borrowing across advanced economies and inflation fuelled by the US-Iran war.
While long-dated gilts were once a mainstay of British government debt issuance – giving the country the longest average debt maturity of any major economy, and some insulation against rising interest rates – demand from domestic pension funds has now largely faded.
Increased Focus on Treasury Bills
Instead, primary dealers, known in Britain as gilt-edged market makers (GEMMs), are looking for more detail of government plans to increase net financing through Treasury bills.
Following a review earlier this year, the government plans to issue a 12-month Treasury bill in early 2027 and to work on expanding the overall size of the market, which only accounts for about 3% of British government financing compared with 5% in Germany and over 20% in the United States.
RBC predicted that T-bills could make up a net £25 billion of financing in the upcoming 2027/28 financial year.
Forecasts for Borrowing and Fiscal Headroom
Overall, GEMMs polled by Reuters predicted a £14 billion increase to public-sector net borrowing for 2026/27 and a £16 billion upward revision for 2027/28, relative to budget forecasts in March.
The gross financing requirement for the next financial year – a closer proxy for financing needed through gilt and T-bill sales – is expected to be revised up by £27 billion from March's estimate to £334 billion.
This would still leave the budget deficit on course to fall from £129 billion this year to £112 billion in 2027/28, its lowest as a share of GDP since the COVID-19 pandemic.
But Healey's headroom against a longer-term target, balancing non-investment spending against tax revenue by 2029/30, is expected to narrow to £15 billion from £24 billion forecast in March.
That headroom is slightly greater than the £12 billion median in a Reuters poll of economists last week, but economists expect it to come under further pressure, as higher inflation is squeezing already-tight future spending plans.
Potential Challenges for Future Spending Reviews
"While the Budget looks set to be a relatively low-key affair, it will probably set up a difficult Spending Review next year," said James Moberly, UK economist at GEMM Goldman Sachs.
"Existing departmental spending plans look very tight ... but funding higher outlays will be challenging unless the economic outlook improves," he added.
Key Data from Reuters Poll and Official Forecasts
Reuters poll DMO remit OBR forecast
(Oct 2026) (April 2026) (March 2026)
Gross gilt £249.6 £246.2
issuance billion billion
2026/27
Net T-bill £10 billion £5 billion
issuance
2026/27
Gross £334.3 £307.6
financing billion billion
requirement
2027/28
PSNB 2026/27 £129.4 £115.5
billion billion
PSNB 2027/28 £112 billion £96.5 billion
Short-dated 43% 39%
gilt issuance
2026/27
Medium-dated 35% 31%
gilt issuance
Long-dated 7% 9%
gilt issuance
Index-linked 10% 9%
gilt issuance
