UK long-dated gilt issuance expected to hit a 20-year low
Bond dealers expect UK long-dated gilt issuance to hit a 20-year low as total sales drop to 245 billion pounds. The move reflects a shift toward shorter tenors.
The United Kingdom is on track to issue its lowest volume of long-dated government debt in two decades during the next financial year. According to a Reuters poll of bond dealers, the country is scaling back overall debt sales for the first time since the 2022/23 period. The UK Debt Management Office (DMO) is expected to announce its 2026/27 plans on Tuesday, with median forecasts indicating that total gilt sales will fall to 245 billion pounds ($332 billion). This is a decrease from the 304 billion pounds issued in the current year, though borrowing remains significantly higher than levels seen before the COVID-19 pandemic.
Issuance of gilts with maturities exceeding 15 years is projected to account for less than 10% of total sales, continuing a downward trend from five years ago when such debt made up more than 30% of the total. Long-dated debt has become a more expensive source of financing in recent years, leading to a median forecast of approximately 22 billion pounds in sales—the lowest since the 2005/06 period. Strategists at Morgan Stanley anticipate that the DMO will continue to prioritize shorter-dated bonds.
"We expect the DMO to continue to skew issuance towards shorter tenors."
Fabio Bassanin, a strategist at the firm, added that a gilt remit aligned with these expectations should serve as a positive catalyst for the market. Overall, dealers expect 40% of issuance to consist of conventional gilts with maturities under seven years, while medium-dated bonds will make up 30%. Inflation-linked bonds are forecast at 10%, with long-dated debt at 9%.
While the United Kingdom has historically maintained the longest average maturity of government debt among major economies, the cost of long-dated borrowing has risen sharply since 2022. Factors such as inflation, high interest rates, and fiscal risks pushed 30-year gilt yields to an 18-year high of 5.75% last September. Finance Minister Rachel Reeves will present updated growth and borrowing forecasts on Tuesday, an event she intends to be lower-key than previous budget updates.
Primary dealers polled by Reuters suggest that Reeves may have a larger margin for error against her main fiscal target, with the median forecast rising to 24 billion pounds from 21.7 billion in November. James Moberly, an economist at The Goldman Sachs Group, Inc., noted that this additional headroom could provide the government with more flexibility.
"We would also not entirely exclude the possibility of further action on the cost-of-living if pre-measures headroom increases more materially."
Rachel Reeves is working toward a pledge that the government will no longer borrow to fund day-to-day spending by the 2029/30 financial year. Public sector net borrowing for 2025/26 is currently forecast at 131 billion pounds, slightly lower than previous estimates from the Office for Budget Responsibility, partly due to strong tax receipts in January.
