DMO issuance cut leads to sharp drop in gilt yields

Budget saw reduction in net financing needs leading to cut in DMO remit for issuance

Jonathan Stapleton
clock • 1 min read
Gilt yields have fallen back since yesterday's announcement
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Gilt yields have fallen back since yesterday's announcement

The Debt Management Office (DMO) has reduced the amount of gilt issuance over the remaining of the fiscal year – a move that has led to a fall in yields.

In a statement yesterday (27 October), the DMO said that planned total gilt sales in 2021/22 were falling by £57.8bn to £194.8bn.

The DMO has cancelled proportionally more auctions of long dated bonds - reducing issuance of these bonds by £13.3bn.

As a result of the announcement, ten-year yields fell by 0.13 percentage points to a three-week low of 0.98% yesterday.

Columbia Threadneedle Investments fixed income portfolio manager Alexander Batten said the reduction was more than markets had expected.

He said: "Although the market expected some reduction in gilt issuance, the £57.8bn that was announced is much higher than anticipated.

"As a result, the DMO has cancelled 18 of the remaining 32 auctions this fiscal year and has chosen to cancel proportionately more auctions of long dated bonds."

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