The UK Treasury bill (UKTB) market is set to receive a series of structural market reforms intended to improve liquidity in the secondary market, provide additional flexibility, strengthen systemic crisis readiness, and improve market function. But why are these reforms necessary, how will the market change, and what opportunities could they present for treasury management professionals?
UK Treasury bills are short-term, zero-coupon government securities, generally issued through weekly DMO tenders at one, three and six-month maturities. Together with bank reserves, gilt repos, commercial paper and certificates of deposit, they form part of the sterling money market. Yet, despite their high credit quality, the UK T-bill market remains comparatively underdeveloped.
At the end of 2025, T-bills represented around 3.5% of the UK’s marketable government debt, compared with approximately 22% in the US and 13% in Japan. In those markets, they are an established source of government financing and collateral for short-term transactions. In the UK, they have essentially been relegated to managing short-term fluctuations in government cashflows.
The UK’s small T-bill market is partly the legacy of earlier debt management policy. Sterling crises in 1967, 1976 and 1992 demonstrated how quickly market confidence could deteriorate, highlighting the risks of relying too heavily on short-term borrowing that must be refinanced frequently. More directly, the full-funding rule introduced in 1985 encouraged borrowing from non-bank investors, and between 1989 and 1996 T-bills were excluded from qualifying funding, favouring gilt issuance. Meanwhile, the growth of defined benefit pension schemes and insurers created substantial demand for long-dated and index-linked gilts, further encouraging the government to borrow over longer periods. Together, these factors left T-bills playing a comparatively small role in the UK government debt market.
With T-bill issuance historically concentrated on short-term cash management rather than sustained funding, the stock of bills available for trading has remained small, contributing to a relatively thin secondary market. Investors often buy T-bills at auction and hold them to maturity, leaving fewer securities available for resale. For dealers, providing regular buying and selling prices is not particularly attractive either as Banks are subject to leverage ratio requirements that broadly measure capital against total exposures, rather than the riskiness of individual assets. Holding large inventories therefore ties up capital for relatively small trading margins. With limited dealer activity and little T-bill repo trading, investors can struggle to sell holdings quickly or at competitive prices.
A more active market would help on both sides. More predictable issuance and stronger demand would give the government another dependable funding channel, reducing its reliance on gilt investors at a time when defined benefit pension schemes are becoming less significant buyers of long-dated debt. Short-term borrowing would also be a cheaper source of funding for government as the yield curve is currently upward sloping, although such savings would be weighed against more frequent refinancing and changes in interest rates.
T-bills are also useful collateral in repo transactions, where securities are exchanged temporarily for cash. If they were easier to obtain and trade, more institutions could use them to raise secured short-term funding. That would help the wider money market function more smoothly.
For these reasons, HM Treasury and DMO conducted a joint consultation and, following this, confirmed three measures in May 2026:
- 12-month T-bills: The DMO will offer bills around the 12-month point at weekly tenders by March 2027, giving investors another maturity for matching cashflows.
- T-bill Standing Repo Facility: In 2026/27, eligible dealers will be able to borrow specific T-bills temporarily from the DMO, helping them deliver securities sold to customers and quote buying and selling prices with greater confidence.
- T-bill collateral pool: The DMO will create and retain bills for use in repo transactions, rather than outright sale. Creation is expected to start after the October 2026 Budget.
Further implementation details are expected at the Budget. Measures such as mandatory market-making obligations and retail investor incentives are not being introduced at this stage.
For local authorities, third-sector, and corporate treasurers, a larger market could make T-bills a more practical option for surplus cash, particularly where investments can be held to a known maturity. An active secondary market would make selling before maturity easier, but should not be relied upon as a substitute for cash or daily-liquidity funds.
As with any investment, yield is only part of the decision. Treasurers should compare T-bill pricing and transaction costs with deposits, money market funds and other short-term investment options, and check access, custody arrangements, investment limits and accounting treatment.
Arlingclose can advise on whether T-bills fit an organisation’s investment strategy, help with dealing arrangements and provide recommended bid rates for weekly tenders, balancing the return sought against the likelihood of securing an allocation. To discuss T-bills and our related advisory services, contact fwatson@arlingclose.com.
