(Corrects forecasts for gilt sales and headroom in bullet points to align with main story) By David Milliken LONDON, Feb 27 (Reuters) - Britain is on track to issue the lowest amount of long-dated
UK dealers expect long-dated gilt issuance to hit 20-year low in 2026/27
Reuters poll: UK gilt issuance outlook for 2026/27
Correction notice and byline
(Corrects forecasts for gilt sales and headroom in bullet points to align with main story)
By David Milliken
Long-dated gilt issuance expected to fall to a two-decade low
LONDON, Feb 27 (Reuters) - Britain is on track to issue the lowest amount of long-dated government debt in two decades in the next financial year as it scales back overall sales for the first time since 2022/23, according to a Reuters poll of bond dealers.
The UK Debt Management Office will publish its plans for the 2026/27 financial year on Tuesday and dealers' median forecast is for total gilt sales to fall to 245 billion pounds ($332 billion), still far above borrowing levels before the COVID pandemic but down from 304 billion pounds in the year just ending.
Like in 2025/26, sales of gilts with a maturity of over 15 years are expected to continue to account for less than 10% of issuance, down from more than 30% five years ago. Such debt has become relatively more expensive as a source of financing in recent years.
This would reduce the median amount forecast to be sold to around 22 billion pounds, the lowest since 2005/06, barring any changes later in the financial year.
Dealer commentary and issuance skew to shorter tenors
"We expect the DMO to continue to skew issuance towards shorter tenors," Morgan Stanley strategist Fabio Bassanin wrote to clients, predicting 252 billion pounds of issuance.
"A gilt remit aligned with our forecasts should be a positive catalyst for gilts," he added.
Issuance mix, demand shift, and borrowing costs
Overall, dealers polled by Reuters on average expected 40% of issuance to be made up of conventional gilts with a maturity of under 7 years, 30% to be medium-dated, 9% long-dated, 10% inflation-linked and the remainder to be allocated later.
Britain still has the longest average maturity of government debt across major economies, a legacy of historic demand for these bonds from domestic pension funds that has now largely disappeared.
Since 2022, however, the cost of new long-dated borrowing has surged as inflation, official interest rates and perceived fiscal risks mounted and last September 30-year gilt yields touched an 18-year high of 5.75%.
Treasury bills review and expected net issuance
The government is undertaking a review that will consider increasing the amount of finance raised by issuing short-dated Treasury bills, but for 2026/27 dealers expect net issuance to remain close to 2025/26 levels at 11.5 billion pounds.
GOVERNMENT HOPES FOR LESS BUDGET DRAMA
Finance minister Rachel Reeves will present updated growth and borrowing forecasts on Tuesday, though she has said she intends it to be a much lower-key event than her annual budget in November or past mid-year updates.
The banks polled by Reuters, all primary dealers in British government debt, gave a median forecast that Reeves' margin for error against her main fiscal target will rise to 24 billion pounds from 21.7 billion at November's budget although Britain's budget watchdog will not publish a formal assessment next week.
James Moberly, UK economist at Goldman Sachs, said it was possible that Reeves could use the expected extra headroom to ease repayment terms for student loans.
"We would also not entirely exclude the possibility of further action on the cost-of-living if pre-measures headroom increases more materially," he added.
Reeves' main budget target is based on her pledge that by 2029/30, the government will no longer borrow to fund day-to-day spending - something Britain has achieved only once since 2002.
Public sector net borrowing for 2025/26 is forecast to come in at 131 billion pounds, slightly lower than the Office for Budget Responsibility forecast in November, partly helped by stronger-than-expected tax receipts in January.
Banks do not expect the OBR to change its 2026/27 forecast of a 112 billion-pound deficit.
($1 = 0.7403 pounds)
(Reporting by David Milliken; Editing by Toby Chopra)
