Citi Look Into Who Is Buying Gilts

Citi note that “there is another £64.7bn of glit issuance due this quarter, plus £8.2bn QT sales, to round off a record fiscal year for issuance (adjusting for BoE flow).”

• “Summing BoE net purchase data across broad investor types (domestic private, overseas, domestic banks) maps very well vs. net gilt supply (gross less redemptions, adjusted for QE/QT).”
• “It is immediately apparent that the pick-up in issuance has been met by domestic demand with little shown from overseas.”
• “This is a significant change given overseas investors were the number one net buyers of gilts in 12 of the last 16 years.”
• “Another emerging change is the pick-up in demand from UK banks.”
• “This again is a significant change given UK banks were net sellers of gilts in the previous 6 years.”
• “The pick-up in demand by UK banks correlates with cheaper gilt ASW: further adjustment may be necessary to further entice this investor base.”