MNI INTERVIEW: UK To Normalise Bond Auction Calendar-DMO Chief

The UK is aiming to normalise its bond auction calendar, stepping back from the short-term remits used over the past 12 months, despite greater-than expected bond issuance in the coming fiscal year, Debt Management Office head Robert Stheeman told MNI.

"I would hope that the structure of the current remit will represent a return to normality and that we will be issuing more broadly and evenly across the whole financial year," Stheeman said in an interview following the government's 2021/22 budget, which targeted gilts sales GBP50 billion above market estimates.

The DMO responded to the spending surge in response to the initial Covid shock by rapidly accelerating issuance at the start of the fiscal year, but this time around it plans to go at a steady pace.

"You could certainly argue that the successive short-term remit announcements in 2020-21 meant that we were doing an element of front-loading in relation to the entire year in the current year, given the scale and pace of the financing need, but this was highly unusual for us," Stheeman said.

OVERSEAS DEMAND

The Office for Budget Responsibility, the official fiscal forecaster, on Wednesday highlighted that while the mean gilt maturity is 15 years the median is just four years once quantitative easing is factored in. But the DMO chief said maturity strategy is not influenced by Bank of England bond purchases.

"We are not trying in any way to second guess what the Bank might be doing in terms of its QE purchases or what it might be doing if it ever gets round to unwinding purchases," he said.

The DMO is simply meeting strong demand from overseas investors at the short end and from domestic investors at the long-end.

"We have never targeted a specific average maturity," Stheeman said.

The share of long-dated issuance announced Wednesday was above market expectations.

"Our strategy now, including in the amount of longs that we are issuing now, which as a percentage ... is possibly higher than the market expected, I think points to ... a real desire to maintain a low element of rollover or refinancing risk," he said.

GREEN CURVE

Stheeman envisages several issues of green bonds to start building a green yield curve, after Chancellor of the Exchequer Rishi Sunak revealed plans to initiate issuance of such securities this year, and said environmental objectives will be incorporated into the Bank of England's inflation remit.

"What has been announced is that we will issue in the coming financial year a minimum of GBP15 billion, not necessarily in one bond," Stheeman said, noting the "ambition has also been clearly stated for us to build a green curve."

"I would like to think that we are pointing towards certainly more than one issue in the current financial year and we are definitely pointing to the building of a curve over time. Now, whether a curve is three, four, five issues ... goodness knows," he added.

Green maturities may not necessarily match those of existing issues, Stheeman said.

"We will have to think when it comes closer to this about which maturities we issue at, we want to make [sure] they complement rather than cannibalise demand for 'traditional' gilts," he said.