Bond traders anticipate that the UK will propose one of the largest borrowing plans in history this week. Chancellor of the Exchequer Jeremy Hunt is attempting to strike a balance between his government's commitment to boosting growth and calls for fiscal discipline.

According to the median estimate of 16 primary dealers, the UK Debt Management Office (DMO) is expected to announce an increase in the issuance of UK government bonds by £15 billion ($19.5 billion) for this fiscal year on Wednesday. This would bring total borrowing to £293 billion, the highest level aside from 2020, which was an anomaly due to pandemic response measures.

The budget will be the first time investors see the efforts of the new Labour government to finance widespread investments. It will also lay the groundwork for the anticipated large-scale borrowing in the coming years, as the government rolls over the massive debt that has surged to 100% of GDP over recent decades.

"The gilt market is nervous about the potential for a significant increase. The issuance of gilts will be at high levels for many years to come," said Adam Dent, a strategist at Banco Santander in Spain.

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Although many investors and strategists, including Dent, believe that the market will smoothly digest the additional supply, risks remain high. The UK government's borrowing costs have already climbed, approaching multi-year highs, with the ill-fated efforts of former Prime Minister Liz Truss to stimulate the economy still fresh in memory.

The UK is expected to increase its government bond issuance plan for this fiscal year. Over the past month, UK bonds have underperformed other bonds due to concerns that the government will change fiscal rules aimed at limiting borrowing. Last week, Reeves confirmed the plan, which will allow the UK to borrow up to £70 billion over the next five years.

For the market, the timing of these additional sales is crucial, which remains "an area of uncertainty," said Moeen Islam, a strategist at Barclays.

On Monday, the yield spread of 10-year German government bonds remained largely stable at 194 basis points. The spread rose to a high of nearly 200 basis points last week, the highest level in over a year.

The UK is expected to continue favoring the issuance of short-term bonds.The forecasts released on Wednesday range from Morgan Stanley's £286 billion to Nomura's £315 billion. The surveyed banks believe that the bills will provide a net contribution of about £6 billion.

Based on the median forecast of 14 primary dealers who provided classifications, the Debt Management Office (DMO) is expected to largely maintain the term structure of its sales plan. This will maintain a policy of not favoring long-term securities in bond sales, in the face of waning demand from institutions such as pension funds.

Sam Hill, Head of Lloyds Bank Market Insights, said: "It's not just about the numbers. The market's reaction is likely to depend on the coherence of the overall macroeconomic strategy."