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Chancellor's Spring Statement: the bond market's £124.7 billion challenge

23rd March 2022

Commenting on the Chancellor’s Spring Statement Ben Nicholl, Fund Manager at Royal London Asset Management, said:

“The Chancellor’s Statement had few hidden surprises with most of the key announcements already well flagged.

“The update to the financing remit on the other hand surprised against consensus expectations. Issuance was lower than predicted, and there was a rise in index linked supply versus expectations; this is despite double digit rises in inflation expected later in the year, and the resulting cost of financing inflation linked debt getting ever more expensive.

“The debt management office also sought to include green issuance as a separate funding line, much like they have done with index linked bonds - but with £10 billion allocated to tapping the two existing bonds, and no desire to build a yield curve just yet, it could be argued that the shine has come off this product.

“The immediate market reaction has seen UK yields move lower and gilts outperform versus overseas markets, with markets focusing on the lower total gilt issuance, but this could be a red herring. Gross issuance of £124.7 billion must be considered in the context of no market support from the Bank of England, for the first time since 2010. Markets will ultimately need to adjust to this changing supply dynamic, and the possibility of active gilt sales by the Bank. Active managers should be pleased, as the vast supply creates plenty of opportunities to add value over the next 12 months.”


The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.