By VIVEK AHUJA, DUNCAN KERR and ADAM BRADBERY
The U.K. government gave the green light to new ways to sell some of its debt, reflecting concerns the traditional auction system may not be able to handle an expected surge in debt issuance.
The move is part of the biggest overhaul of the way the government sells debt in more than a decade and come as it forecasts a larger-than-expected surge in debt issuance, to £220 billion ($322.76 billion) for the fiscal year ending in April 2010.
Wednesday's annual budget statement also included a further use of mini-tenders for long-dated and inflation-linked gilts, as U.K. government bonds are called.
U.K. bond yields jumped Wednesday as investors digested the extra bond issuance.
Economists at Barclays Capital, for one, had expected total issuance of £180 billion, already £32.1 billion more than the provisional amount announced in March.
The benchmark 10-year yield rose 0.125 percentage point to 3.444%.
The government plans to sell £25 billion of its debt via syndication, which involves using investment banks to underwrite the entire issue before the bonds are sold to investors, much as corporate bonds are sold.
Such sales let banks drum up demand for bonds in advance, making it less likely offerings will fail.
In an auction, which is used most often, governments invite bids from a set of nominated market makers or investment banks, which then distribute the bonds to investors.
The plan to consider syndication was previously reported by Financial News in January.
Mini-tenders are essentially small auctions and were first used in October. The Debt Management Office plans to issue £12 billion of gilts, split equally between long-dated and index-linked gilts, via mini-tenders that will be no bigger than half the size of regular auctions of comparable maturity and type. At least one mini-tender will be held each month under current plans.
The government said supplementary issuance methods are particularly valuable for long-dated and index-linked gilts because of the "lumpy nature of demand" for such bonds, which means interest may not coincide with an auction calendar.
Write to Duncan Kerr at duncan.kerr@dowjones.com and Adam Bradbery at adam.bradbery@dowjones.com