Latest news with #JessicaPulay
Irish Times
30-05-2025
- Business
- Irish Times
The bond vigilantes are on the prowl
The bond vigilantes are growling and baring their teeth, and authorities around the world (most of it, anyhow) are doing the right thing, and backing away. But the risk of bond wobbles spiralling into a broader outbreak of nerves across markets is high. From the US to the UK and Japan, bond investors are making it clear they are unwilling to be used as a low-cost cash machine for government spending forever. The circumstances for each country vary but the underlying force is the same: the world has changed. Inflation is higher, central banks are not soaking up bonds as they once did, and yet governments still want to borrow like it's going out of fashion. Now, bond investors want to be rewarded properly for the risks. The UK's head of debt issuance, Jessica Pulay, said she would lean more heavily on short-term debt to meet the country's financing needs, because borrowing costs on debt with a longer shelf life have become uncomfortably high – the effect of weaker investor demand. READ MORE If bond prices deteriorate further, analysts reckon the Bank of England could pull back on sales of debt that it accumulated after the Covid crisis. In Japan, it is a similar story. Long-term borrowing costs raced higher last week after domestic investors, stung by unusually high inflation expectations and painfully high market volatility, baulked at continuing to absorb debt maturing far out into the future. Thirty-year yields shot to more than 3 per cent – their highest point in decades, reflecting a steep decline in the price of the bonds. This is high drama in a national bond market known as a cure for insomnia. Again, the ministry of finance has restored a fragile calm only, reportedly, by suggesting that it too might skew new debt issuance on to the shorter term, so investors feel like they are taking on lighter risks. [ US economy fast becoming Trump's Achilles' heel Opens in new window ] In the US, the big thumbs down from the bond market came in the immediate aftermath of Donald Trump's poorly-received so-called 'reciprocal' tariffs in April. With conspicuous timing, the president brought in a 90-day pause after the usual foreign buyers sat on their hands and refused to buy in to a normally rather routine auction of three-year debt. As Trump himself said, the bond market had become 'yippy'. Last week, the bond market struck again, providing patchy support to fresh 20-year debt from the US treasury. The dollar dropped and bond prices fell in response – an alarming indication that investors are backing away from US risk at a time when the White House is seeking to pass a spending package that adds over $3 trillion (€2.65 trillion) to government borrowing over the next decade. 'Ultimately, there are only two 'solutions' to this problem: either the US has to sharply revise the reconciliation Bill currently sitting in Congress to result in credibly tighter fiscal policy; or, the non-dollar value of US debt has to decline materially until it becomes cheap enough for foreign investors to return,' concludes Deutsche Bank's George Saravelos. 'Brace for more volatility.' One reliable truism in markets is that deficits don't matter until they do. Well, now they do. Some context is useful here. Investors are not allergic to all borrowing. It is worth noting that Europe is spared this kind of hand-wringing, at least for now, as higher levels of borrowing, especially in Germany, are likely to stimulate growth while a stronger euro, buoyed by a search for alternatives to the dollar, will help keep inflation under control. [ From crypto to private jets: How Donald Trump and his family have profited from the US presidency Opens in new window ] In addition, we are not even close to panic stations yet. 'Oh no, here we go again,' laments Dario Perkins at TS Lombard. 'If you are a macro doomster, there is no level of yields that will keep you calm,' he writes. When yields fall, investors fret they are a signal of an impending recession. When they rise as they are now, he said, the mood shifts to 'OMG fiscal crisis!' – a sentiment Perkins does not fully share. This is a fair point. But it is clear that, for a host of reasons in a number of key markets, bond investors' patience is wearing thin, and the danger is that this leaks in to other asset classes. Why bother buying stocks when bonds offer such generous returns? US stock markets, hopped up on demand from retail investors, are not reflecting this risk yet. But this year has taught us that sentiment can switch at speed. Do not be surprised if the snarling bond vigilantes take the blame for the next vibe shift. – Copyright The Financial Times Limited 2025
Zawya
27-03-2025
- Business
- Zawya
UK bond chief hails 'important shift' away from long-dated issuance
LONDON - The head of the agency that issues British government bonds said there would be an "important shift" away from long-dated debt in the coming financial year in response to rising borrowing costs and reduced investor demand. The United Kingdom Debt Management Office announced on Wednesday that it would issue 299 billion pounds ($385 billion) of government bonds this year - the second highest amount on record. But the share accounted for by long-dated conventional gilts with a maturity of more than 15 years will drop to 13%, the lowest since 1990 and down from nearly 20% this financial year. "The DMO is going to continue ... a well-diversified programme of issuance across all maturity sectors. But there is an important shift in the proportions this year," DMO Chief Executive Jessica Pulay said. "This reflects our analysis of cost and risk for the exchequer, and this also takes into account market feedback on declining structural demand for long-dated gilts," she added. Britain has the longest average maturity debt stock of any Group of Seven economy, at 14.4 years at the end of 2024. This reflects historic demand from British pension funds and life insurers which has faded significantly in recent years, prompting bond investors and dealers to recommend the DMO scale back long-dated issuance at a faster pace this year. Gilt prices rose sharply after the DMO announcement which showed slightly lower-than-expected planned overall gilt sales for 2025/26 - with 30-year gilts gaining the most. "I like it. There was no need for the DMO to issue so many longer-dated gilts," said James Athey, a fixed income manager at UK-based fund manager Marlborough. Thirty-year gilt yields hit their highest level since 1998 in January at 5.47% and at 5.30% still command a greater premium over short-dated gilts than is the case with U.S. bonds. "In a period of heightened uncertainty investors are increasingly looking to the short end of the curve as a safer play," Athey said. SHIFTING SHORTER Tilting issuance towards short-dated conventional gilts with a maturity of up to seven years - which will account for at least 37% of issuance in the coming year, up from 35% before - would also make it easier to hold larger auctions, Pulay said. Long-dated gilts are riskier for most investors than shorter maturities, so auctions for the former must generally be smaller. Pulay also highlighted an increase in the "unallocated" portion of gilt issuance which stands at 9% at the start of the 2025/26 financial year compared with 4% at the start of 2024/25. This would allow the DMO to respond to in-year changes in market demand for gilt "on a more regular and active basis", she said. Britain has generally attracted high demand for gilts at auctions and at bond syndications - several of which have attracted record volumes of orders this year, including for long-dated conventional and index-linked gilts. "High-quality institutional demand for long maturity gilts continues to be present," Pulay said. She also played down the risk that Britain would find it harder to sell debt as historically low issuers such as Germany ramp up borrowing to fund greater defence and infrastructure investment. "Sterling remains one of the leading global reserve currencies, and ... the results of our operations over the course of 2024-25 demonstrate very visibly the continued demand for sterling in general and for the gilt product in particular," she said. ($1 = 0.7764 pounds)
Reuters
26-03-2025
- Business
- Reuters
UK bond chief hails 'important shift' away from long-dated issuance
LONDON, March 26 (Reuters) - The head of the agency that issues British government bonds said the agency would make an "important shift" away from long-dated debt in the coming financial year in response to rising borrowing costs and reduced investor demand. The United Kingdom Debt Management Office announced on Wednesday that it would issue 299 billion pounds ($385 billion) of government bonds this year - the second highest amount on record. But the share accounted for by long-dated conventional gilts with a maturity of more than 15 years will drop to 13%, the lowest since 1990 and down from nearly 20% this financial year. "The DMO is going to continue ... a well-diversified programme of issuance across all maturity sectors. But there is an important shift in the proportions this year," DMO Chief Executive Jessica Pulay said. "This reflects our analysis of cost and risk for the exchequer, and this also takes into account market feedback on declining structural demand for long-dated gilts," she added. Britain has the longest average maturity debt stock of any Group of Seven economy, with an average maturity of 14.4 years at the end of 2024. This reflects historic demand from British pension funds and life insurers which has faded significantly in recent years, prompting bond investors and dealers to recommend the DMO scale back long-dated issuance at a faster pace this year. Gilt prices rose sharply after the DMO announcement which showed slightly lower-than-expected planned overall gilt sales for 2025/26 - with 30-year gilts gaining the most. "I like it. There was no need for the DMO to issue so many longer-dated gilts," said James Athey, a fixed income manager at UK-based fund manager Marlborough. Thirty-year gilt yields hit their highest level since 1998 in January at 5.47% and at 5.30% still command a greater premium over short-dated gilts than is the case with U.S. bonds. "In a period of heightened uncertainty investors are increasingly looking to the short end of the curve as a safer play," Athey said. SHIFTING SHORTER Tilting issuance towards short-dated conventional gilts with a maturity of up to seven years - which will account for at least 37% of issuance in the coming year, up from 35% before - would also make it easier to hold larger auctions, Pulay said. Long-dated gilts are riskier for most investors than shorter maturities, so auctions for the former must generally be smaller. Pulay also highlighted an increase in the "unallocated" portion of gilt issuance which stands at 9% at the start of the 2025/26 financial year compared with 4% at the start of 2024/25. This would allow the DMO to respond to in-year changes in market demand for gilt "on a more regular and active basis", she said. Britain has generally attracted high demand for gilts at auctions and at bond syndications - several of which have attracted record volumes of orders this year, including for long-dated conventional and index-linked gilts. "High-quality institutional demand for long maturity gilts continues to be present," Pulay said. She also played down the risk that Britain would find it harder to sell debt as historically low issuers such as Germany ramp up borrowing to fund greater defence and infrastructure investment. "Sterling remains one of the leading global reserve currencies, and ... the results of our operations over the course of 2024-25 demonstrate very visibly the continued demand for sterling in general and for the gilt product in particular," she said. ($1 = 0.7764 pounds)
