Investment firm King and Shaxson is close to issuing what it says is the first local authority bills since 1988.
The company says that it is reviving the instrument which will allow councils’ short-term borrowing to be traded, giving councils more flexibility in the authority-to-authority lending market.
It says that the bills will yield investors 10-15 more basis points than an equivalent treasury bill and will cost around the same for a lender.
David Price, director of treasury at King & Shaxson told Room151: “There is a lot of straight cash depositing within the growing authority-to-authority lending market.
“Currently, if you were to lend cash for 364 days it is fixed to maturity. With a bill, you have the possibility of selling it on.
“This will help open up a wider funding arena for authorities.”
He said that deals done using local authority bills will count towards the quarterly transaction criteria under MIFID II, which could assist authorities wishing to opt up from retail to professional status.
King & Shaxson said that it will act as the issuing and paying agent and dealer for the bill programme through CREST, the central securities depository that holds UK equities and gilts.
According to Price, the firm is on the verge of issuing bills for two large local authority borrowers, who are currently finalising paperwork on the deals.
Figures released by the government showed that the inter-authority lending market grew by 40% to almost £7bn in 2016/17, compared to the previous year.
Price said: “The reintroduction of the LA bill market offers significant advantages to local authorities, whether borrowing or lending, and has the potential to transform the method of financing their short-term funding needs.”
In November, Room151 revealed that treasury adviser Arlingclose had launched the first trading platform enabling inter-authority lending and borrowing to be fully completed online.
Office for National Statistics data shows that no local authorities have issued short-term debt securities in the period for which is holds information, stretching back to 1987.
