A downward revision of £10.5bn in the Debt Management Office’s net financing requirement reflects the “improvement in the fiscal outlook”, according to the Autumn Statement.
The Net Financing Requirement for 2023-24 has been revised down to £232.3bn. It was also previously revised down in April by £3.3bn, from a figure of £246.1bn in the Spring Budget.
Total gilt sales in 2023-24 are therefore now forecast in the Autumn Statement to reduce by £0.5bn to £237.3bn.
Likewise, fewer Treasury bills are now expected to be issued than previously expected.
The Spring Budget earlier anticipated that net issuance of Treasury bills this year for debt management purposes would contribute £5bn to meeting the DMO’s net financing requirement. It is now planned for net issuance to make a contribution of -£5bn.
Commenting on the Autumn Statement, James Lynch, fixed income manager at Aegon Asset Management, said: “In the grand scheme of UK budgets, this was a mild disappointment but not a disaster for the gilt market.
“The market was expecting somewhere around the £10bn to £15bn area in cuts to gilt issuance this year but only got £0.5bn taking total gilt sales to £237.3bn, due to the measure announced today. Treasury bills were however reduced by £10bn.
“Short term, the focus of the gilt market will be the extra auctions that were not expected. Medium term it will be the economic fundamentals of GDP, inflation and BoE rates that will still be determining the level of gilt yields.”
Craig Inches, head of rates and cash at Royal London Asset Management, agreed the gilt market was expecting “quite a sizeable” downward revision to gilt issuance. “However despite the remit being revised down by £10.5bn, this was largely met by the reduction of Treasury bills.”
He added: “A reshuffling of auctions meant that the DMO will now sneak in another medium- and long-dated auction in December, which is not the Christmas present the gilt market was expecting.”
Green gilts
On the other hand, the government is still aiming to raise £10bn via green gilts this financial year, according to the Autumn Statement.
In the document, the Treasury said the government had made “strong progress” with its green financing programme since the Spring Budget 2023.
Under the green financing programme, sovereign green bonds are issued via the Debt Management Office, with retail green savings bonds issued via NS&I.
The government’s £10bn target remains unchanged from the Spring Budget, in which the Treasury said the target was subject to demand and market conditions.
The government launched its green financing programme in September 2021, with the issue of an inaugural green gilt maturing in 2033.
A second green gilt, maturing in 2053, followed in October 2021 to bring total proceeds raised by both issues to £16.1bn.
chloe.cheung@ft.com
