UK's £258 Billion Debt Supply Seen Skewed to Shorter Bonds.

DEBT; FINANCIAL market reaction; INVESTORS; BONDS (Finance); BOND prices; INFLATION-indexed bonds

The UK is expected to increase the sale of shorter-maturity bonds in the upcoming fiscal year in order to address concerns about declining demand for long-dated debt. The Debt Management Office is projected to announce a target of £258 billion in gilt sales, with the share of long-dated bonds expected to decrease. This increase in bond supply is significant, especially considering the Bank of England's plan to reduce its gilt stockpile. However, there are concerns about the impact of this supply shock on the market, particularly if it is accompanied by inflationary pre-election giveaways. Additionally, there is a decrease in demand from liability-driven investors such as pension funds for long and inflation-linked debt. The market is anticipating a shift towards shorter maturities, as indicated by outgoing Chief Executive Robert Stheeman. The gross DMO remit forecasts vary among banks, reflecting uncertainty around the government's fiscal rules. There is also divergence on the extent to which the UK will rely on alternative sources of funding, such as retail savings products and Treasury bills. The UK pension industry's demand for long-dated debt has decreased, which may result in a decrease in the share of long-maturity bonds. [Extracted from the article]

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