United Kingdom lifts bond sales to record levels
This is to fund coronavirus recovery in times of crisis
London: The United Kingdom will sell a record amount of government debt this year as the country battles the economic fallout from the coronavirus, testing the level of market demand for its bonds.
The Debt Management Office (DMO) announced plans to sell another £50bil of gilts (Us$61.9bil), bringing its issuance this fiscal year through August to £275bil. A survey of primary dealers forecast £412bil pounds of issuance for the year.
The issuance plans look set to dwarf those during the height of the financial crisis. While the Bank of England is helping to keep bond yields in check through its asset-purchase programme, the latest figures will likely add to concern over borrowing levels.
The pound rose 0.4% to US$1.2381. UK bonds, which rallied earlier this week to touch record-low yields in shorter maturities, will open trading at 8am in London.
The UK’S debt load climbed above the nation’s yearly economic output in May for the first time since 1963. Chancellor Rishi Sunak, who has committed helping to pay furloughed worker salaries until October, told Bloomberg Television Friday that the current rate of spending was not sustainable.
The DMO had previously only given issuance plans for the four months through July, which stood at £225bil, just £3bil short of the previous record in 2009-10.
The DMO’S actions “are eye watering on the one hand, but unsurprising given all the spending measures to combat Covid-19,” Marc Ostwald, global strategist at ADM Investor Services, had said earlier. Pooja Kumra, a senior European rates strategist at Torontodominion
Bank in London, meanwhile, had said previously that the DMO’S debt plans “could take the entire year’s issuance close to £350bil.” One scenario by the Office for Budget Responsibility had suggested a gross financing requirement of £381bil if the lockdown lasted for three months. The Resolution Foundation, meanwhile, had forecast a six-month lockdown would require around £500bil of extra borrowing. —