What is changing and when
Government bond dealers say the UK plans to step up its use of Treasury bills, with details due Oct. 28 as Burnham and Healey deliver their first budget. That follows a May announcement that a 12 month bill will be introduced by the close of the fiscal year, alongside the existing one, three and six month tenors.
The UK has long leaned on longer-dated gilts. Building out the bill market would let the government meet rising demand for very short-dated debt while potentially trimming interest costs - a welcome prospect after higher borrowing costs have eaten into an already thin fiscal buffer ahead of the budget.
Why shorter can mean cheaper
Bank of America Corp. rates strategist Mark Capleton said, "Scaling back the weighted average maturity of issuance has the potential to reduce, or reduce the upward pressure on, gilt yields." He added, "You reduce the average interest cost by issuing shorter on the curve. And you reduce the rate you pay on, say, the 10-year gilts you issue by issuing fewer of them."
Primary dealers surveyed by Bloomberg put net T bill issuance near £11 billion - $14.7 billion - for the current fiscal year. That is roughly in line with last year, but well above the £5 billion the DMO set out in April. Looking to next year, Royal Bank of Canada Capital Markets projects £25 billion, and dealers expect a bigger shift.
Who is buying and how demand looks
Demand has been firm. At UK Treasury bill sales, the bid-to-cover metric has usually been above two, and Bank of America notes banks have lifted their bill holdings in recent years. UK money market funds, which invest in short-term debt from governments, banks and companies, have seen assets under management grow rapidly.
"Clients are essentially looking for returns that can beat cash, have a high level of predictability in outcomes with holdings that can be matched to future liabilities and cashflow needs," according to Jason Hollands at wealth manager Evelyn Partners.
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The UK stands out for how long it borrows. In 2025, a mere 20% of its borrowing took the form of bills, versus an average of around 47% among OECD members.
The risks, recent shifts, and what it means for your portfolio
Shorter borrowing means refinancing more often, which raises exposure if interest rates rise. Borrowing costs have already climbed this year during a global bond selloff, with the benchmark 10 year gilt yield hitting 5.36%, the highest since 2007.
Since Sept. 17, after the Bank of England announced it would stop selling longer-maturity gilts, UK 30 year yields are down 11 basis points. Over the same period, France rose 39 basis points and the US fell five. That pullback has drawn Allianz Global Investors, Rathbones Asset Management and Royal London Asset Management into longer-dated gilts.
"Maturity reduction is a global theme for us, but nowhere needs it more than the UK," said Capleton. The bottom line: a tilt toward bills has the potential to reduce, or lessen the upward pressure on, gilt yields.
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