UK bonds on loan highest since 2020, S&P Global says

LONDON, May 14 (Reuters) - Investors ​are ⁠borrowing UK government bonds at ​the highest rate since 2020, data from S&P Global Market Intelligence shows, which ​could ‌suggest some were increasingly betting that the value of the debt ⁠would fall.

In early May, the aggregate ⁠amount of gilts on ​loan was around $120 billion, the highest sustained level since the height of the 2020 COVID-19 pandemic, according to the data, with borrowing increasing ​steadily ‌since 2024.

One way investors such as hedge funds short an issuer's debt is to borrow it, then sell the debt with the expectation that the price will fall before ​the investor has to buy the debt back.

Another reason for borrowing ‌bonds is to put on popular basis trades, which bet on the difference between cash ‌and derivatives prices. Bond dealers also need to borrow more along with the sharp rise in gilt issuance in recent years ​to help manage their balance sheets, S&P Global said.

Domestic political uncertainty is unlikely ‌to be the primary driver of the more recent rise in borrowing, but may be reinforcing it, S&P Global said. This ⁠week ⁠gilt yields rose as Prime Minister Keir Starmer's ‌leadership was thrown into doubt.

"The increased borrowing could be down to more ​volatility in the (bond) ​pricing, which gives underlying investors a ‌good opportunity to get in and out of positions," Matt Chessum, securities finance director at S&P Global, told Reuters. (Reporting by Yoruk Bahceli; Editing by Anousha Sakoui and Dhara Ranasinghe)