UK's issuance of long-dated government bonds to fall to 21-year low

UK’s Long-Dated Government Bond Issuance to Drop to Lowest in 21 Years

Britain’s Government Debt Issuance Plans and Market Impact

By David Milliken

LONDON, March 3 (Reuters) - Britain said on Tuesday it would cut the amount of government debt it sells for the first time in four years and that the volume of long-dated gilts due to be issued was on track to fall to the lowest in around 20 years.

The UK Debt Management Office said it intended to issue 252.1 billion pounds ($335.7 billion) of government bonds in the 2026/27 financial year - down from 303.7 billion pounds in 2025/26 though slightly above expectations for 245 billion pounds in a Reuters poll of primary dealers.

Within that, long-dated gilts with a maturity of 15 years or longer were planned to account for under 10% of total issuance, down from more than 30% five years ago, reflecting the higher cost and reduced demand for this type of debt.

Bond Market Reactions and Yield Movements

BOND YIELDS SURGE AS MIDDLE EAST CONFLICT DEEPENS

The market impact of these decisions - and of finance minister Rachel Reeves' new budget forecasts - was overshadowed, however, by inflation fears sweeping bond markets as energy prices surged following the U.S.-Israeli attacks on Iran.

Benchmark 10-year gilt yields have risen more than 25 basis points this week.

Expert Commentary on Gilt Issuance

"Gilt issuance may be a touch higher (than expected) ... but (there is) nothing in the detail that will be driving gilt yields. The geopolitics and the surge higher in energy prices are the only game in town," said Matthew Amis, investment director at fund manager Aberdeen.

The slightly higher-than-expected gilt issuance reflects in part the DMO's decision to announce only a modest 5 billion pounds of net Treasury bill issuance for 2026/27, below the median 11.5 billion pounds that dealers had expected.

The DMO often uses changes in T-bill sales to accommodate in-year changes in government borrowing needs. Britain's finance ministry is also consulting the market on a bigger role for T-bills in longer-term financing.

Long-Dated Gilt Sales: Historical Context and Future Outlook

LONG-DATED GILT SALES ON COURSE FOR LOWEST SINCE 2005/06

Tuesday's gilt remit shows 23 billion pounds of long-dated gilts scheduled for sale at auctions or bond syndications in 2026/27, down from the 32.5 billion pounds sold in 2025/26.

Comparison with Previous Years

The long-dated gilt sales would be the lowest since 2005/06, although solid demand at auctions or syndications would usually lead to some extra sales and might take the total sold above the 23.4 billion pounds reached in 2007/08.

Breakdown of Gilt Issuance by Maturity

The DMO figures showed around 39% of 2026/27 issuance would be for short-dated gilts, 31% would be for medium-dated, 9% for long-dated gilts and 9% for index-linked gilts, while 12% of issuance would be decided later.

DMO Chief Executive Jessica Pulay told Reuters the decision to overweight shorter maturities relative to longer ones was "driven by overall our assessment of cost and risk, and also takes into account market demand".

Asked if the trend had further to run, she said she did not want to signal a direction of travel as it would depend on how market demand evolved.

The split between maturities planned for 2026/27 is broadly similar to that achieved in 2025/26, when the DMO reduced the relative share of long-dated and index-linked issuance compared with what it planned at the start of the year.

Future Financing Needs

For 2027/28, the DMO said gross financing needs would rise to 307.6 billion pounds, barely changed from an estimate of 308.4 billion pounds in November.

($1 = 0.7509 pounds)

(Reporting by David Milliken; Editing by Hugh Lawson and Alex Richardson)