If you’ve decided to borrow from the PWLB (more correctly called the 'PWLB lending facility' but I will call it the PWLB here) on any given day then getting the timing right is important.
For fixed rate loans the PWLB sets rates twice a day (variable loans are set once a day in the morning). The PWLB is open to accept requests for loans between 9:30 and 4:15 on normal working days. On Christmas Eve and New Year’s Eve there is a half day (the PWLB doesn’t say exactly what their working hours would be on these half days, but I would presume it will be open until 12:30 which is when markets close and when afternoon rates are usually published by). As well as making sure you don’t leave it until they’re closed to contact them, timing is important because PWLB rates are based on gilt yields which change continually during the day.
The PWLB Lending Arrangements state that ‘There are two intra-day re-determinations of fixed rates, published at 9:30am for start of business and at 12:30’*. If gilt yields fall after the morning reset you are in most circumstances better to wait until the afternoon when you are likely to be able to borrow at a lower rate.
Rates are not usually set exactly at 9:30 or 12:30 and are usually set slightly before these times. Knowing the exact time of the rate set is helpful because it means that gilt yields from this time can be monitored to see if they have gone up or down since. At the moment the PWLB publishes the time of setting rates in the title on the current fixed interest rates page on their website. It has not always done this, although it did used to publish the time retrospectively in the historical interest rates. An analysis of the times of rate setting since April 2010 shows that the average time the rate is set is 9:13 in the morning and 12:19 in the afternoon. The earliest morning rates have been set is 9:01 and the latest (which admittedly is a bit of an outlier) is 11:15. The earliest published afternoon rate is 12:02 with the latest (again being unusually late) being 13:35. The PWLB don’t make it expressly clear whether rates are applicable until the next rate is published or only during the strictly morning or afternoon period. For example, it is not clear if you email the PWLB at 12:01 and they publish the afternoon rate at 12:20 whether you would receive the morning or afternoon rate at this time.
You are looking to monitor gilt yields to determine whether to borrow in the morning or delay until the afternoon, in each instance giving yourself enough time for completing the electronic form and emailing it to the PWLB at pwlb@dmo.gov.uk. When gilt yields fall in the afternoon you may consider waiting until the next day, but there is a risk that the extent of the fall in yields will not be reflected in the next morning's PWLB rates setting. This is because more can happen overnight than can happen between about 11:30 and 12:30, as movements in US and Asian fixed income markets could have a bearing on gilt markets. This is especially true if the next PWLB rate reset is after the weekend or a bank holiday. If you’ve decided rates are right for you that day, being on the safe side is usually better than waiting until the next working day when they may have shot up. That said, it is still sensible to wait until later in the afternoon to borrow rather than sending your email at 12:01. Being aware of any data releases, which often happen in the early afternoon if they are from the US, also often gives some general steer to what markets may do.
For further advice on PWLB borrowing please contact the Arlingclose Team at treasury@arlingclose.com or on 08448 808 200.
* The Lending Arrangements also state that ‘HM Treasury reserves the right to make further, unscheduled intra-daily rate changes … as necessary.’. Whilst this does not happen often in remains possible.
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