Exclusive: UK DMO’s Stheeman: Maintaining Liquidity and Stability of the Gilt Market Key Challenge for DMO

2 May 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – Maintaining the liquidity and stability of the gilt market poses a significant challenge for the Debt Management Office (DMO) of the United Kingdom, according to Sir Robert Stheeman, Chief Executive Officer of the DMO.

In an interview with Econostream on April 29 (transcript here), Stheeman said, ‘Personally, I think a key challenge for the DMO will be in maintaining the liquidity and stability of the gilt market’.

‘The gilt remits that the DMO needs to deliver in the coming years are likely to remain at elevated levels’, he said, adding that it was important to issue in a wide range of maturities, reaching a diverse investor base, in order to set remits that help support market liquidity.

Asked about a shift in demand for long-dated gilts, Stheeman assured that the underlying demand remained strong. ‘We expect pension funds and insurance companies to remain a very important sector of the investor base for us and we anticipate that underlying demand for long-dated gilts will remain strong, in both conventional and index-linked format’, he said.

To guarantee that the government would maintain access to cost-effective financing in all market conditions, the DMO continued to actively cultivate a diverse investor base, he said.

As to incentivised gilt retail bonds, Stheeman said that even though the DMO welcomes increased retail participation in the gilt market, different financial intermediaries ‘have effectively serviced the reportedly marked increase in retail activity in gilts recently’.

‘From the DMO’s perspective, any diversification of the gilt market investor base is to be welcomed. We also welcome any market-led initiatives that facilitate greater access to gilts’, he noted.

Addressing concerns about an uncovered auction, Stheeman said he viewed the possibility ‘with equanimity’, as a failed auction would not imply an inability of the DMO to raise money through bond issuance.

According to him, recent auctions were successful and saw support from the market. ‘Cover ratios, which are just one measure of demand at auction, have recently been at record high’, he said.

‘[T]o the extent feasible based on total green spending, we want to build the green gilts up in size to encourage liquidity and trading in these bonds’, Stheeman commented when asked about green issuance.

Asked for his view on the concerns about his departure from the DMO, Stheeman said that his newly appointed successor Jessica Pulay ‘has huge experience in fixed income markets and her appointment is particularly important in a year of record issuance for the DMO and net supply to the market. It sends a key message that it's "business as usual"'.