Reuters poll: Britain to sell fewest bonds since crisis in 2018/19 – primary dealers

By Andy Bruce

LONDON (Reuters) – Britain’s government will sell the fewest bonds in any fiscal year since the financial crisis in 2018/19, possibly worth less than 100 billion pounds, a Reuters poll of primary dealers showed on Monday.

The figures come a day before finance minister Philip Hammond presents a half-yearly update on the public finances. At the weekend he said he would stick to a plan to cut the country’s high debt levels.

Britain’s budget deficit has probably fallen to about 2 percent of annual economic output in the financial year ending on March 31, which would be its lowest since 2002 and way down from the 10 percent it reached in 2010, when many government departments began cutting spending sharply.

Britain will issue around 100.7 billion pounds ($139.7 billion) of bonds in 2018/19, compared with the Debt Management Office’s remit of 115.1 billion pounds in the current financial year, according to the median forecast in the poll of 15 primary dealers.

Forecasts ranged from 90.2 billion pounds to 107.5 billion. Seven primary dealers thought 2018/19 gilt issuance would come in below 100 billion pounds for the first time since 2007/08.

Public sector net borrowing for 2018/19 is on average forecast to drop to 33.3 billion pounds, compared with a forecast of 39.5 billion made by the Office for Budget Responsibility in November. This would be the lowest in cash terms since 2002/03.

Primary dealers are banks that buy gilts directly from the British government to sell them on, helping to create a liquid market.

“The pace of improvement within the UK public finance data has outstripped market expectations in recent months, accompanied by a favorable trends of revisions,” Santander (MC:) analysts Stuart Green and Adam Dent wrote in a research note.

Britain’s overall public sector net debt – excluding state-owned banks but including temporary Bank of England lending to the banking sector – totaled 1.74 trillion pounds in January, 84 percent of gross domestic product and more than double its level before the financial crisis. Hammond says that restricted Britain’s ability to respond to future economic shocks.

The poll suggested the DMO will adopt a similar issuance profile to the current financial year, although slanted more in favor of long-dated bonds.

There will be no change to the stock of treasury bills, the poll showed.

Fifteen out of the 19 wholesale and retail primary dealers – known in Britain as Gilt-Edged Market Makers (GEMMs) – took part in Monday’s poll.

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