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Investing.com -- The UK’s Debt Management Office (DMO) decided to significantly reduce the issuance of long-term government bonds, known as gilts, for the new fiscal year. This move comes after the last fiscal year ended with notable fiscal slippage, which, however, did not result in a higher debt-to-GDP ratio or an increased short-term supply of gilts.
The DMO’s strategy adjustment is seen as a response to the consistent rise in total duration supplied over the past two years, amid a decline in demand for long-duration gilts. According to UBS, the peak in duration supply may have passed, and the effects of this change are expected to be felt in the coming months.
The outlook for UK interest rates also appears to be improving. UBS highlighted several factors contributing to disinflation, including the strength of the British pound, lower energy prices, changes in global trade, and a cooling labor market. These elements are anticipated to support a continued dovish shift by the Monetary Policy Committee (MPC).
As the MPC is expected to implement rate cuts, UBS predicts that the benefits of cheaper funding will spread throughout the yield curve. This development could provide relief for UK rates, as the cost of financing for the government is projected to decrease, aiding in the management of the national debt.
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