MNI INTERVIEW: DMO To Smooth Gilt Mkt Ops If BOE Unwinds QE

--DMO, BOE To Liaise Closely On QE Unwind: Stheeman

--Little Sign Of Brexit Impact On UK Gilt Markets

--Foreign Buyers Still Good Presence In UK Gilt Market

--No Plans For DMO Euro Issuance Ahead

By Luke Heighton and Nick Shamim

     BRUSSELS (MNI) - The UK's debt managers will liaise closely with the Bank

of England when the time finally comes for the winding down of the central

bank's balance sheet in order to ensure smooth market operations, the head of

the Debt Management Office told MNI in exclusive comments Tuesday.

     Gilt market disruption was "in no one's interest" and the DMO and the BOE

would liaise on operational aspects to ensure a smooth future unwinding of gilt

holdings built up through quantitative easing, Robert Stheeman, Chief Executive

of the DMO said.

     The DMO's interest lay in "ensuring that prices adjust smoothly in order to

allow the market to absorb stock on offer at any given issuance event," Stheeman

said, speaking to MNI on the sidelines of AFME's European Government Bond

Conference.

     "If and when the Bank of England does make any changes to its monetary

policy stance - be that interest rate changes or asset sales - we will continue

to focus on encouraging a liquid and efficient gilt market thats able to

accommodate any such developments smoothly," Stheeman added.

     --NO BREXIT CONCERNS

     With Brexit again the lead story in Westminster, Stheeman emphasised how

the Gilt market has responded to all developments in the process in an orderly

manner.

     "I would say that the main barometer of the market's perception of

developments in the negotiations has been seen in the sterling currency market

rather than the gilt market," Stheeman added.

     Whilst the UK debt chief refused to speculate on the outcome of the Brexit

negotiations, he noted that the gilt market is deep and liquid and has a proven

track record of successfully adjusting to a number of external shocks.

     "Key is an efficient price discovery process and the depth and liquidity of

the gilt market has facilitated this," Stheeman added.

     --FOREIGN BUYERS

     Stheeman rejected suggestions that ongoing uncertainty over the UK's status

post-Brexit might have led to a notable drop-off in foreign sales.

     "We have not noticed any particular reduction in overseas interest in our

program," Stheeman added.

     Although some overseas investors "may take short-term tactical decisions

regarding investing in gilts" in the event of a cliff-edge scenario, he added,

"we would expect the overall strategy - particularly of overseas institutional

investors - to continue to focus on holding high quality/liquid assets which

will continue to be supportive of gilts.

     "It's worth noting that overseas accounts took 20% of the most recent

syndication of the conventional 2071s in October, some twice the average at

syndications in 2017-18," said Stheeman. The UK debt chief also noted that the

latest bankstats data showed net inflows from overseas investors into gilts of

GBP5.4 billion in September.

     --NO EURO ISSUANCE

     Stheeman also said the DMO had no plans to issue bonds in euros ahead,

saying the "policy of the UK government is to finance its deficits in sterling."

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; tel: +44 203-586-2229; email: nick.shamim@marketnews.com

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