–Deficit Outlook, Credit Rating Safety Has Also Helped
–Says Demand For Gilts Remains Robust Across The curve
–Liquidity Of Market Also Very Good

LONDON (MNI) – The fact that the Bank of England did not end up
unwinding its stg200bn quantitative easing programme this year played a
key role in the better-than-expected market conditions, Debt Management
Office Chief Executive Robert Stheeman said here today.

Speaking at the Euromoney Global Borrowers and Investors conference
here, Stheeman said that concern over a possible unwind of the QE
programme had been a market concern last year:

“A year ago, it’s probably fair to say I would have thought that the
coming year would have been more challenging than it actually turned out
to be…the market environment has been more benign”.

“A year ago there was a lot speculation about would happen if
the Bank of England were to sell any of its bonds it had acquired in its
quantitative easing program. That didn’t materialise…”

But other factors were also at play, Stheeman said, including the
declining outlook for the deficit and securing the AAA credit rating:

“The impression that we get is that the trajectory of the declining
deficit and the declining financing need and the hence declining call on
the market over the next years has clearly given the market a lot of
reassurance over the last months. We were on negative watch with
Standard and Poor’s, we are no longer on negative watch”.

Stheeman said that demand remained solid for Gilts:

“The message we get from investors, across the curve, also at the
short end all the way across the curve is that demand is robust”.

He continued:

“We’ve seen a good response to our auctions. Cover ratios remain
strong and most importantly, market liquidity is still very good”.

The average relative long maturity of the UK Gilt market haad also
given the DMO financing flexibility through the crisis, he said:

“The average maturity remains very high indeed, the longest by
quite some way in the OECD, it’s about 13.5 years. The fact we have that
has undoubtedly helped us. It gives reassurance to the market at a time
when things did look quite stressed”.

–London Bureau; tel: +442078627492; email:dthomas@marketnews.com

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