UK government debt has a longer average maturity than the international norm. Official figures, however, overstate the advantage because they fail to account for the "maturity transformation" implied by the Bank of England's gilt-buying.
According to the Debt Management Office (DMO), the average maturity of gilts and Treasury bills outstanding was 13.5 years at the end of 2009. This figure, however, includes £190 billion of gilts bought by the Bank of England, representing 23% of the stock of debt held outside the DMO.
The market has, in effect, exchanged these gilts, with an average maturity of about 10 years, for central bank reserves, which are repayable on demand. The relevant metric for assessing refinancing risk is the average maturity of the market's combined holdings of debt and reserves, not that of the stock of debt including the Bank's gilts. This is significantly lower, at about 11 years, down from 14 years in mid 2008 – see chart.
The Bank of England pays Bank rate on reserves. This results in an interest saving when Bank rate is below the initial yield on purchased gilts, as at present. The Bank, however, might be forced to tighten monetary policy aggressively in the event of a funding or exchange rate crisis. This would be instantly reflected in the combined government / Bank interest bill.
The UK's "true" debt maturity is still significantly longer than for other major countries – the US is at the low end of the range, with an average maturity of publicly-held marketable debt, including bills, of about four years. The gap, however, is much smaller than a year ago and would erode further if the Bank were to extend its gilt-buying programme.