Treasury committee quizzes DMO on gilt sales

The UK's Debt Management Office is facing political scrutiny over whether it achieved the best price when selling more than £300bn of government bonds during the past decade.

The chairman of Parliament's Treasury committee has written to the DMO's chief executive, Robert Stheeman, enquiring about payments to groups of banks who drum up demand from investors.

Mel Stride questioned whether these syndications were good value for the taxpayer given there appeared to be consistently high demand for government bonds, known as gilts. In most of the 68 syndications since 2009, bonds have been priced at the "tight" end of a yield range, meaning buyers have paid the highest price offered, the Financial Times reported.

"Could this be a sign that sometimes you have potentially not priced keenly enough, to the taxpayers’ detriment, especially given the seeming high levels of demand?" Stride asked in his letter.

Stride asked whether investors were able to push down the prices at bond auctions by shunning a "reference gilt" used as a reference for the price of the new bond and how the DMO monitors this. He also asked how fees for banks managing syndications were set and the running total in the past 10 years.

The DMO's job is to get the best price when the government issues hundreds of billions of pounds of bonds each year. It sells most of the bonds at auctions but it has raised £301bn using syndications to sell larger chunks of debt since syndications restarted after the financial crisis.

Demand for government debt has remained high during the Covid-19 emergency, pushing yields into negative territory meaning the buyer effectively pays the government to lend it money.

Government bond sales usually attract more demand than the value of bonds on sale. When the DMO failed to sell all the bonds on offer in 2009 for the first time in seven years it raised concerns about the UIK's ability to stimulate the economy.