MNI Gilt Week Ahead - April 19 2021: Remit revision likely

The week ahead will see a number of significant events for the gilt market with a slew of economic data due for release as well as a likely gilt remit revision.

• Probably the most significant for the gilt market will be the release of the public sector finance data on Friday at 7:00BST which will (usually) be followed by an announcement of any updates to the financing mandate for FY21/22. No timing has been announced for this yet, but based on last year, we could see a remit revision announced by the DMO at 7:30BST on Friday. This year the OBR has already said that the central government net cash requirement (CGNCR) which is used directly in the remit calculation could "undershoot our March EFO forecast for 2020-21". This would imply the Treasury cash balance is higher than expected at the end of March and hence unless the expectation is that has pulled forward revenue/delayed spending into FY21/22, the financing requirement for the new year will hence be lower.
• Normally, a small change to the financing requirement would mean a change to the target T-bill stock or the "unallocated" portion of the gilt remit. However, the consensus for this year seems to be closer to a GBP20bln reduction in the financing requirement for FY21/22 will be needed. This is likely to be too large for these usual tweaks. This means that the DMO will either have to cancel auctions, make average auction sizes smaller or make the PAOF smaller. We think that the latter is very unlikely and that auctions that are already announced for the current fiscal quarter are untouchable. We think that after the unallocated bucket is reduced, the size of the other buckets will be reduced proportionately to each other (i.e. keeping the same percentage to each maturity bucket). Past this, it probably doesn't matter too much to the market whether there are a small number of auctions for the July to March period cancelled or if average auction sizes are reduced.
• In addition to the potential remit revision, Tuesday will see labour market data for February (and more recent experimental data), Wednesday inflation data for March and Friday will see retail sales data for March (alongside the public finance release). All of these data are likely to be watched, albeit all will have been impacted by lockdowns and the next monthly data set is likely to be much more informative.
• With the MPC due to meet next week, this will be the last week of speeches ahead of purdah. Ramsden and Bailey are both due to speak Wednesday but neither have topics explicitly linked to monetary policy.
• Note that Monday's APF operation will be the last that will see the 1.00% Apr-24 gilt eligible for purchase by the BoE with the gilt due to drop below 3 years to maturity this week.

GiltWeekAhead19042021.pdf