UK gilt sales seen rising to $196 billion in 2016-17

Britain will increase sales of government bonds in the coming fiscal year in part to compensate for finance minister George Osborne probbaly missing his borrowing targets, a Reuters poll of primary dealers showed on Tuesday. The mid-range forecast from a poll suggested the Debt Management Office will issue 137 billion pounds ($196 billion) in the year starting in April, more than the 127.4 billion pounds to be sold this fiscal year.
Fourteen out of the 16 wholesale primary dealers - known as Gilt-Edged Market Makers (GEMMs) - took part.
A day ahead of his annual budget, Osborne looks unlikely to meet his borrowing target for the current 2015/16 fiscal year, with progress in cutting the budget deficit slower than expected.
The central government's net cash requirement (CGNCR) - a measure the DMO uses as a starting point for its annual issuance remit - looks likely to overshoot the target of 75.5 billion pounds in the current fiscal year by at least a few billion.
"On the basis of the monthly CGNCR data ... it will require a spectacular improvement ... to meet that target," Scotiabank economist Alan Clarke said. "Other things equal that would point to an overshoot in borrowing of 7 billion pounds which will raise the bar for issuance over the next financial year."
Osborne said on Sunday he would announce further, relatively modest, cuts to public spending this week to keep his longer-term deficit reduction plans on track in the face of a weakening economy.
Respondents said the potential for market uncertainty around the June 23 referendum on Britain's membership of the European Union would probably dissuade the DMO from selling long-dated bonds or holding any syndicated sales of gilts in the surrounding weeks, preferring April or May instead.
The poll suggested the DMO would retain its current split between sales of short-, medium-, long-dated and inflation-linked bonds, although some strategists expected it to offer fewer short- or long-dated gilts.
"Cutting back in these parts of the curve would make sense, in our opinion, given demand has occasionally been shaky (at sales)," fixed income strategists at Morgan Stanley said.
GEMMs will be keeping an eye on any announcements from Osborne on further asset sales.
"One potential wildcard - which could lower gilt issuance sharply - is the announcement of new asset sales, perhaps involving the Bradford & Bingley loan book," said Citi analyst Jamie Searle, referring to the assets of a bank that was nationalised during the financial crisis.