Our views

Markets need to digest more gilts following Autumn Statement


Craig Inches, Head of Short Rates and Cash

23 November 2016

The key move in gilt yields was largely a reaction to the Debt Management Office remit that was published immediately after the chancellor sat down. The large surprise was that of the additional £20.6bn issuance, £15bn of this would be funded by gilt sales as opposed to treasury bill issuance. This will result in an additional four auctions and a syndication within the 2016/17 financial year. 
The market will now need to digest two index linked and one nominal syndication within the next 12 weeks. This is a mammoth amount of supply to consume over the festive period. The market is placing a huge reliance on price insensitive investors such as liability driven investment managers to close their eyes and buy, but I fear even they may be a little less hasty, in an environment where yields are rising!

The key move in gilt yields was largely a reaction to the Debt Management Office remit that was published immediately after the chancellor sat down. The large surprise was that of the additional £20.6bn issuance, £15bn of this would be funded by gilt sales as opposed to treasury bill issuance. This will result in an additional four auctions and a syndication within the 2016/17 financial year. 

The market will now need to digest two index linked and one nominal syndication within the next 12 weeks. This is a mammoth amount of supply to consume over the festive period. The market is placing a huge reliance on price insensitive investors such as liability driven investment managers to close their eyes and buy, but I fear even they may be a little less hasty, in an environment where yields are rising!

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.