Issuance Requirement Reduction Projections Start To Trickle In Ahead Of Budget

Sell-side estimates surrounding UK issuance needs for the current fiscal year have started to filter in ahead of the UK Budget (22 November ‘23 release date):

• HSBC: With last year’s ‘mini-Budget’ still fresh in the memory and fiscal deficits at the forefront of market attention, gilts are likely to be sensitive to what is announced by the UK Chancellor and the UK DMO - at least in the short term. We expect the DMO to announce a £15bn reduction in gilt sales for 2023/24. Admittedly, the longer-term supply outlook remains challenging. However, our fundamental view is still that supply alone is not a justification for higher yields. Ultimately the more important factor for the gilt market in 2024 is likely to be how long the BoE’s higher-for-longer guidance holds up. Unless what is announced at the Autumn Statement materially moves the dial in terms of the growth and inflation outlook (which we do not expect it to), we suspect that the combination of rising recession fears and the prospect of a dovish BoE shift will be supportive for gilts in the months ahead. With that in mind, our 10-year gilt yield forecasts sit at 4.0% and 3.0% for end-2023 and end-2024 respectively.
• J.P.Morgan: We estimate that the overall government financial requirement for FY23/24 will be around £32bn lower vs. current estimates. NS&I’s Net Financing Target was projected at £7.5bn (+/- £3bn) in the March budget and following the withdrawal of the 1Y Guaranteed Growth and 1Y Guaranteed Income bonds in October NS&I states it is on track to meet its Net Financing Target. Hence, we assume the contribution of NS&I to the government’s overall financing requirement remains at £7.5bn. This £32bn reduction is split £20bn reduction in gilt sales to around £220bn this fiscal year and a £12bn reduction in the contribution of T-bill sales to debt financing compared to the spring estimates.