Chancellor's Spring Statement: the bond market's £124.7 billion challenge

23 March 2022  
4 min read

Commenting on the Chancellor’s Spring Statement Ben Nicholl, fund manager at Royal London Asset Management, said: 

“The Chancellor’s Statement had few hidden surprises with most of the key announcements already well flagged.

“The update to the financing remit on the other hand surprised against consensus expectations. Issuance was lower than predicted, and there was a rise in index linked supply versus expectations; this is despite double digit rises in inflation expected later in the year, and the resulting cost of financing inflation linked debt getting ever more expensive.

“The debt management office also sought to include green issuance as a separate funding line, much like they have done with index linked bonds - but with £10 billion allocated to tapping the two existing bonds, and no desire to build a yield curve just yet, it could be argued that the shine has come off this product.

“The immediate market reaction has seen UK yields move lower and gilts outperform versus overseas markets, with markets focusing on the lower total gilt issuance, but this could be a red herring. With no Bank of England support next year, net issuance of £124.7 billion will be the third highest remit since the financial crisis, and markets will ultimately need to adjust to the wall of supply to come. Active managers should be pleased, as the vast supply creates plenty of opportunities to add value over the next 12 months.”

About Royal London Asset Management (RLAM):

Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.

RLAM manages £164 billion of assets and employs 129 investment professionals as at 31 December 2021. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.

For professional clients only, not suitable for retail investors.

Issued by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.

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