The U.K. government will issue £63 billion ($110 billion) in bonds for the fiscal year ending April 1, 2007, Chancellor of the Exchequer Gordon Brown said today in his annual budget report to the House of Commons. That compares with £52.3 billion in bonds issued in the previous fiscal year. Of the £63 billion, £19.5 billion is marked for long-dated bonds; £16 billion will be allocated toward index-linked bonds; and £20 billion will be in short and medium bonds. Another £7.5 billion has yet to be allocated, according to the budget report.
Partly due to pension funds driving up demand for long-term bonds to match assets with liabilities, real yields in the United Kingdom hit record lows earlier this year, leading investors to pressure the government to issue more bonds. However, experts disagree on whether the bond issue is enough to meet demand and help stabilize bond prices.
"The government's detailed statement today provides little certainty of any real progress to improve the position for U.K. pension funds," according to a statement from Andrew Green, head of investment strategy at Mercer Investment Consulting.
Separately, Mr. Brown also finalized the government's plans to introduce real estate investment trusts as a new, listed property investment class, starting in January 2007. To convert, companies will have to pay an "exit tax" of 2% of the market value of their property portfolios. Similar to U.S. rules, U.K. REITs will also have to distribute 90% of their profits back to shareholders, according to the budget report.