Summary: UBS expects the UK Debt Management Office (DMO) to issue £271 billion of gilts in 2026-27, down from the current fiscal year as net borrowing and redemptions fall. The bank anticipates the remit will include roughly £20 billion of long-dated gilts and £34 billion of inflation-linked securities. UBS warns that issuing beyond 10 years is costly under current yield curve conditions and highlights high unallocated supply that the market should assume will largely land in short and medium maturities.
In its latest research note, UBS sets out a projection for gilt issuance next fiscal year at £271 billion. The bank frames this as a reduction from the current year, reflecting an expected decline in both net borrowing and redemptions.
UBS specifies that the projected remit would encompass about £20 billion of long-dated gilts and £34 billion of inflation-linked securities. The note argues that pushing issuance further out the curve beyond 10 years is not cost effective given prevailing yield relationships - 10-year funding currently costs roughly 4.3%, whereas extending that maturity profile by another 10 years would demand a marginal rate close to 6%.
The bank also highlights that long-term real yields represent relatively better value in the present environment because breakevens remain elevated.
Gilt supply has already contracted significantly in duration terms from its 2025 peak. UBS estimates the average pace of issuance during 2026-27 will be about £21 billion per month in 10-year equivalents, compared with peak monthly issuance close to £45 billion in mid-2025.
On budget execution, UBS notes a positive surprise in January: tax receipts came in approximately £6 billion above Office for Budget Responsibility projections, while public expenditure was around £3.2 billion lower. Through February 24, the DMO had raised £285.8 billion in cash from gilt sales, leaving £17.9 billion still to meet the current remit.
Given the stronger-than-expected budget performance, UBS says an overfund for the current fiscal year appears likely. That would lower the Net Funding Requirement for 2026-27 by an estimated £4 billion versus current projections.
The bank expects unallocated supply to remain elevated at £27 billion, equivalent to about 10% of the total remit. UBS advises market participants should assume most of this unallocated issuance will ultimately be delivered in short and medium-dated gilts.
UBS concludes that if its issuance projections and the assumptions about financing costs prove accurate, long-dated gilts would likely attract a positive market reaction.
Context limitations: The note’s conclusions and the figures above reflect UBS’s projections as stated in the research note. The article does not attempt to add or alter those estimates.