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HomeEconomyExclusive - UK gilt market resilient despite 'major repricing' - Debt office...

Exclusive – UK gilt market resilient despite 'major repricing' – Debt office chief

David Milliken

LONDON (Reuters) – The UK bond market is going through a “major repricing” but should be able to easily absorb additional 62 billion pounds ($28 billion dollars) debt is In Finance Minister Kwasi Kwarteng September 23 mini-budget, UK Debt Management Office (DMO) The person in charge said on Monday.

Robert Stheeman – the man who oversees the UK’s £2.1 trillion government bond market – has seen high volatility in the past days and March2020 early in COVID-19 pandemic, when the Bank of England also intervened to calm the market.

But the overall picture has been different in recent days, as bond traders are generally better able to hold trades, “despite very difficult conditions”, compared to earlier 2020, Stheeman told Reuters in an interview.

For ten years, the UK government has been worried about Kwarteng’s lack of funds 62, German debt has been recorded since at least September 2008 Biggest calendar month drop since Billions of pounds in tax cuts have fueled fears of sharp interest rate hikes by the Bank of England (BoE) and other major central banks.

The 10-year yield has risen since 70 September 20 Highest value since 4 points

%, better than Kwarteng’s mini budget before 72 basis points. They were just under 4% on Monday.

“Both the gilt and other sovereign bond markets have to go through some major repricing,” Stheeman said.

“There is so much uncertainty…not just fiscal conditions, but the potential monetary policy response. That’s what drives…market volatility. A large part,” he added.

DMO to finance its 2009/28 Target raised

£1 billion to 234 £1 billion after Kwarteng’s mini-budget, 2009 £1 billion in funding will be provided by gilts.

“I believe it digests fairly smoothly,” Stheeman said.

UK government bond prices rose on Monday after Kwarteng announced a U-turn on one of his flagship measures, saying he would no longer remove the top tax rate paid by the top 1% of earners.

But Stheeman said the market was more focused on the government’s broad fiscal stance and how that would affect the pace of the Bank of England’s rate hikes.

Bank of England chief economist Huw Pill warned last week that the central bank may need to make a major change in interest rates on Nov. 3, when the central bank will make its next policy decision. The next day, the Bank of England stepped in to buy billions of pounds of 20- and 23-year fallback bonds to stop the market from sliding.

Stheeman – whose wife is a member of the Bank of England committee involved in the decision – said the central bank’s takeover announcement was a “major surprise”, selling £4.5bn of government debt in a DMO operation.

While the timing of the announcement may make life more difficult for bond traders, Stheeman said its unexpected nature does underscore the Bank of England’s independence.

The cliff edge of GILTS?

The Bank of England has indicated that it will stop buying bonds in October – it believes pension funds, hit by falling bond prices, have had enough time to tidy up homes – and plans to restart its delayed Phnom Penh sale in October 31.

When asked if he was concerned about these potential cliff edges, Stheeman said: “I’m not overly anxious. I think it’s the markets we operate in. By nature, there is always the possibility of uncertainty, which obviously applies now.”

A failed auction, where the DMO cannot raise the amount it seeks on a given day, can never be ruled out , he added. The last time was at 2009.

Most of the increase in debt issuance for the remainder of the fiscal year will come from short-term, and to a lesser extent, mid-sized gilts. Stheeman said this reflects greater liquidity in that part of the market.

Bid-ask spreads for gilts are wide – around 234 on Monday, according to Tradeweb data, the basis points for two-year gilts are expected to increase with It narrowed as market volatility decreased, Stheeman said.

He added that regulators also need to look at how derivatives are used by liability-driven investment (LDI) funds in the pension industry.

($1=0.8929 pounds)




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