(Nov 27): The UK is considering ramping up its bill issuance programme, a move that could develop sterling money markets and meet demand from potential new buyers such as stablecoin issuers.
The nation’s Debt Management Office (DMO) will launch a consultation in January on “expanding and deepening” the market for ultra-short dated debt. Other governments including the US have already been leaning more on bills to meet financing requirements.
“The government is interested in hearing from market participants about the potential expansion as well as the deepening of the UK treasury bill market,” said Jessica Pulay, the DMO’s chief executive, in an interview on Wednesday. “It’s important to underscore that no decisions have been made about any future financing.”
The DMO’s consultation follows a report from the Bank of England (BOE) earlier this month that found the current UK bill market may not be able to support demand from stablecoin issuers, which are expected to hold such securities in order to meet liabilities. The DMO did not mention the BOE’s comments or the stablecoin plans specifically.
Under the central bank’s proposals, which are currently under consultation, systemic stablecoin issuers would be allowed to hold up to 60% of their backing assets in short-term sterling-denominated UK government debt.
The “current size, structure and purpose” of the UK short-dated debt market may “not support large demand and activity by systemic stablecoin issuers”, the BOE wrote in its paper published on Nov 10. “Secondary market activity in UK Treasury bills and short-term gilts is currently low, as these are typically buy-to-hold securities for liquidity management purposes.”
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The UK government typically issues bills at maturities of one, three and six months each week. There was about £108 billion (US$143 billion or $185 billion) of bills outstanding in October.
The DMO has already been shortening its debt-issuance strategy more broadly in order to meet a shifting investor base. It has cut sales of long-maturity bonds to record lows as demand from defined-benefit pension funds dries up.
Expanding bill issuance would accelerate that trend and has been called for by some market participants. In March, Bank of America Corp researchers said there was an “urgent” need for a larger UK bills market, similar to the one in the US.
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“The government is committed to maintaining as diversified an investor base as possible across all instruments to enhance the resilience of the financing programme,” Pulay said. Bills “represent an absolutely key component of the UK government’s stock of marketable debt instruments”.
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