Standard and Poor’s may have put the UK on “negative outlook” over fears about the country’s ballooning debt, but this has yet to dissuade foreign investors from tapping into the £220 billion ($359 billion) in government bonds that Britain is set to issue this year.
"Over the last few years the increase in overseas holdings of gilts has actually been quite dramatic," Head of the Debt Management Office Robert Stheeman told CNBC.
“Six or seven years ago overseas holdings made up about 16 to 17% of our entire portfolio," Stheeman said. "Now that figure has doubled and of a much increased portfolio.”
At a time when the UK government is issuing more bonds than even foreign investors are particularly attracted to short and medium dated gilts, according to Stheeman.
But each auction of government debt presents its own set of challenges, he added.
"It’s interesting that you will often find auction covers seem to be high for a period of time then low for a period of time," he said. "It doesn’t tell you very much it just tells you about sentiment in the market at that moment not about demand overall.”
As the Bank of England continues its quantitative easing measures, buying £125 billion of gilts, Stheeman said the DMO is very aware of what the Bank is doing but has no intention to alter its own plans in terms of debt issuance.
“We believe strongly, as does the Bank, that there should not be coordination in as much as we have to do what we have to do," he said. "The Bank is acting in terms of monetary policy which is very different. Also, given the amount of debt we have to issue we could not avoid issuing, at least partially, into that part of curve where the Bank is buying.”
-- Written by Anjuli Davies, assistant producer, CNBC