DMO cuts long gilt sales to 9% of issuance as UK debt strategy shifts

The UK Debt Management Office is exploring whether to absorb long-dated gilts from the Bank of England’s balance sheet, a move that would mark a significant coordination shift between Britain’s two most important players in the government bond market.

For the 2026-27 fiscal year, the DMO has slashed its planned long conventional gilt sales to £23 billion, roughly 9% of total issuance. Jessica Pulay, DMO CEO, indicated in March that issuance plans reflect declining structural demand for long-dated gilts from domestic pension funds.

The pension fund problem

The liability-driven investment sector has been recalibrating since the 2022 mini-budget crisis exposed how leveraged these strategies had become. Pension funds are now de-risking, shifting toward shorter maturities, and in many cases moving to buyout with insurers.

What the Bank of England is doing

For Q3 2026, the central bank’s APF schedule includes three short-maturity gilt auctions at £725 million each and two medium-maturity auctions at £600 million each, with zero long-dated sales planned for the quarter.

The DMO plans to run a pilot switch auction on September 24, 2026, following consultations with gilt market participants. Switch auctions allow the government to retire long-dated bonds and replace them with shorter maturities, effectively reshaping the duration profile of outstanding UK debt without increasing the total stock.

Britain’s duration dilemma

The UK’s average gilt maturity stands at approximately 14.4 years, one of the longest in the G7. The DMO’s pivot toward shorter maturities in new issuance is already pulling that average down, but the existing stock of long gilts remains substantial.

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