Source · Select Committees · Public Accounts Committee
Recommendation 10
10
Deferred
OBR highlights need for more information on overseas UK gilt ownership for risk management.
Conclusion
We asked the OBR whether any improvements could be made to government’s borrowing processes. The OBR expressed a desire for more information on the owners of UK gilts held overseas, which it said represented arounds 25% of all UK debt – the second highest in the G7. It explained that foreign investors were “more fickle and more flighty than domestic investors” because they were less committed to holding UK gilts over the long-term.16 The OBR told us that compared to domestic investors, such as UK pension funds, foreign investors were more interested in “rates of return” and were more likely to switch to German or Japanese government bonds should the attractiveness of UK gilts fall. The OBR said that having a better understanding of the owners of UK debt held overseas would be advantageous from a “risk management perspective” because government will have a better sense of how sensitive these investors are to market changes.17
Government Response Summary
The government claims the recommendation is implemented, stating it currently lacks visibility of beneficial gilt owners. However, it commits to reviewing sovereign bond ownership data from other countries to learn from their approaches.
Government Response
Deferred
HM Government
Deferred
3.3 The government agrees with the Committee’s recommendation. Recommendation implemented 3.4 Overseas investors play an important role in maintaining the diversity of the gilt investor base, ensuring that underlying demand for UK debt remains strong, changes in gilt supply can be met smoothly, and borrowing costs can be minimised in line with the debt management objective. A diverse investor base ensures that government is not overly reliant on any one type of investor. 3.5 Overseas investors include a range of different types of investors, who each have different incentives to buy and trade gilts. This includes foreign central banks, where the role of sterling as a reserve currency has increased. It also includes funds which may originate from the UK but are domiciled abroad. It is therefore not the case that appetite for gilts from all overseas investors will be perfectly correlated or that they are all inherently riskier than domestic investors. 3.6 The gilt market is a large and liquid market with an independent rate setting body. There is no reason to believe that global investors’ strategic allocation will change while the underlying instruments continue to represent diversification and meet liquidity requirements. 3.7 While UK gilts are registered instruments, they are mostly held in nominee accounts, with intermediaries passing on any gilt principal or coupon payments to the underlying beneficial holder who may be domiciled elsewhere. The government currently has no visibility of the underlying beneficial owners of gilts. 3.8 This data limitation is not uncommon across jurisdictions; however, the department will review the sovereign bond ownership data available to other countries to consider if there is anything it can learn from their approaches.