MNI INTERVIEW: DMO's Stheeman-Full Year Remit Only If Credible

-UK Debt Management Head No Point In Unbelievable Fiscal Year Remits

-Cover Ratios May Fall Back To Pre-Covid Normality

By David Robinson

     LONDON (MNI) - The UK Debt Management Office wants to return to a detailed

program for gilt issuance covering the whole fiscal year as soon as possible,

but there is little point if financial markets see ever growing borrowing plans

as a moving target, DMO head Sir Robert Stheeman told MNI Friday.

     "We would be very keen to return to a world of full-year remits as soon as

is reasonable. But in the current environment it just hasn't been possible,"

Stheeman said.

     "There is no point in putting out a full-year remit when you know that

there is a risk that it will be so wide of the mark as to render it

meaningless," he added.

     The DMO's latest remit, published Thursday, showed gilt issuance of GBP385

billion for the April-November period, rising sharply from the GBP275 billion

announced for April-August, and leaving its plans open for the remainder of the

2020-21 fiscal year, ending April 2021.

     "The fact we are not saying anything about the period December to March

2021 is because there is just too much uncertainty and ... the market wouldn't

be likely to attach any value for it," Stheeman said.

     --COVER RATIOS

     As the impact of the Covid-19 pandemic sees gilt issuance soar, there has

been some concern over cover ratios - a measure of demand for any given sale -

which have declined following the Bank of England Monetary Policy Committee's

decision in June to slow the pace of its Asset Purchase Facility (APF) from that

seen through the first tranche launched back in March.

     Stheeman said that cover ratios were only one measure that the DMO uses in

assessing auctions and that they are still higher than a year ago and may simply

return back to pre-Covid levels.

     "It is quite conceivable that auction cover returns to the sort of levels

we were more used to six to twelve months ago," he said.

     Stheeman did acknowledge that the return to functioning of financial

markets since the height of the crisis in mid-March meant the government had not

needed to resort to the enhanced Ways and Means facility at the Bank of England,

effectively the nation's overdraft facility.

     "It was not clear to us how efficient the markets would be. It was also not

clear to us what the actual cash profile of government intervention might be

versus what we would be able to raise at which point through our auction

process," Stheeman explained.

     "It seemed a sensible precautionary measure but we have not had to use the

facility .. the gilt program has been used for what it was intended, namely to

be the primary source of government finance," he concluded.

     -LINKERS

     An increase in index-linked issuance in the updated remit was meant to

address continued market functioning and was not tied to consultations on a move

away from the Retail Price Index, Stheeman said.

     "Do not read anything into (Thursday's) calendar announcement about how the

consultation, or the government's response, will come out in the end or about

the future strategy for inflation-linked debt issuance," he said.

     "What we are doing now is designed to ensure that the market, in the

meantime, continues to function as usual as far as possible," he added.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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