UK Finance Responds to the Debt Management Office's Consultation on Expanding the UK Treasury Bill Market

Credit: Institute for Government

The banking industry backs a deeper, more liquid T-bill market but warns against piecemeal reform and highlights the emerging stablecoin demand dynamic.

Context:

On 3 March 2026, UK Finance submitted its response to the Debt Management Office's (DMO) consultation on the UK Treasury bill (T-bill) market, which ran from 5 January to 27 February 2026. The consultation was launched following an announcement in the Autumn Budget 2025 that the government would explore expanding and deepening the UK T-bill market as part of its broader debt management strategy.

UK T-bills are short-dated sovereign instruments (maturities of 1 day to 364 days) issued weekly at auction by the DMO. Currently, T-bills do not trade on any secondary market — they are generally held by investors to maturity. The DMO's consultation sought views on how to promote greater participation through improved primary market operations and the development of a more active and liquid secondary market, which could support a higher overall stock of T-bills over time.

UK Finance's members include the principal banks and financial institutions that participate in T-bill auctions and use short-dated sovereign instruments for liquidity management. The response drew on members' experience of the UK's T-bill market compared to comparable markets in the United States, Canada, France, and Germany, where T-bill stocks are significantly larger relative to GDP.

Rules and Guidelines:

UK Finance's response supports the DMO's ambition to expand the T-bill market but identifies four key considerations. First, the current T-bill market is undersized by international standards, limiting its effectiveness as a liquidity management tool for banks. The response endorses expanding the stock of T-bills and developing secondary market liquidity, subject to clear cost and risk management rationale from HMT and the DMO.

Second, UK Finance warns against a piecemeal approach to T-bill reform. Changes should consider the overall redemption profile of government debt and how increased T-bill issuance would be financed; members note that poorly sequenced reform could create unintended market disruptions or gilt market impacts. Third, the response explicitly flags the growing importance of digital assets: emerging forms of digital money, including stablecoins, may create additional demand for short-dated sovereign assets (which can serve as eligible reserve assets under stablecoin regulatory frameworks) while also introducing new risks that require careful consideration in the T-bill market design.

Fourth, on secondary market development, UK Finance members note the absence of T-bill secondary market trading infrastructure as a structural barrier to participation. Development of a recognised secondary market venue, aligned with existing repo market infrastructure, would deepen the investor base.

Businesses Affected:

• UK banks, building societies, and financial institutions that participate in DMO T-bill auctions or hold T-bills for liquidity management purposes.

• Stablecoin issuers and digital payments firms for whom UK T-bills may become an eligible reserve asset category under the forthcoming FSMA stablecoin regime, creating new demand for the T-bill product.

• Gilt and money market dealers and fund managers, who would be affected by any secondary market infrastructure development for T-bills.

Next Steps:

• Monitor HMT and DMO's response to the consultation, expected in the 2026-27 financial year, with sufficient notice for market preparation.

• For stablecoin firms and payment institutions: track how UK T-bills feature in the FCA's and PRA's stablecoin reserve asset frameworks — if UK T-bills become an eligible reserve asset, this changes the market dynamics significantly.

• For money market and repo desks: assess how secondary market T-bill trading infrastructure would interact with existing repo facilities and Sterling Monetary Framework operations.

Source | UK Finance | Response to DMO Consultation