MNI Gilt Week Ahead - Mar 1 2021: Focus on the Budget

• After last week's roadmap out of lockdown was released by the government, focus will this week turn to the Budget which is due to be delivered by Chancellor Sunak on Wednesday. We will release our full Budget preview on Tuesday but the headline measures announced are likely to be an increase in corporation tax (to 23-25% over the next few years), probably a freezing of income tax bands (i.e. they will not rise with inflation), additional taxes on internet sales and an extension of Covid-19 support schemes most likely until June. From the previews we have read so far, the extension of these support schemes is likely to cost GBP20-30bln. However, as we noted in last week's Gilt Week Ahead, the OBR's monthly commentary has shown borrowing to be GBP39.8bln lower than expected year-to-date (excluding exceptionals). Some of this is due to less deferrals of tax payments than had been expected, but some is due to lower spending. As a caveat, the current lockdown was not included in the OBR's forecasts and the economy is likely to return to normal at a later date than previously expected.
• With the exception of any surprises to fiscal measures, much of the market reaction is likely to be in reference to the gilt remit for 2021/22 of which we have seen estimates ranging from GBP225-295bln, with the median just below GBP250bln from the preview we have read so far. It is unclear if any separate issuance plans will be released for the new green gilts and whether there will be any details in terms of maturities or expectations of size. Most expectations are that GBP10-15bln will be raised through green gilts in FY21/22. It has also been reported that NS&I will launch the first sovereign green retail bond.
• Also this week, we will receive final PMI data, BoE credit and decision maker survey data and a few other third tier data releases. In terms of MPC speakers, Tenreyro will discuss negative rates as part of an IMF-IMFS webinar on Wednesday – she is already known to believe the benefits have outweighed the costs at least for the Eurozone and it will be interesting if she makes any further comments on implementation in the UK. On Friday Haskel will appear on a panel at a CEPR/University of Chicago Booth School of Business webinar in which he will discuss the challenges ahead for Yellen as US Treasury Secretary – it is unclear whether there will be any scope in the discussions for comments on the UK.

See the link below for the full document including auction previews for the week ahead, QE tracker and BOE purchase analysis, cash flow matrix and issuance calendar:

GiltWeekAhead01032021.pdf