Institutional investors are urging the semi-autonomous Scottish Government to stick to selling shorter-term debt securities as it ‌prepares its debut bond sale, according to reports by Reuters and The Financial Times.

Some fund managers want the Scottish Government to avoid selling longer-dated bonds to limit any extra borrowing cost that could be tied to independence.

Bonds are debt securities and are a routine form of borrowing for sovereign and sub-sovereign governments around the world, as well as local authorities, private and public companies, and quasi-government entities.

Aberdeen City Council completed a successful £370 million bond sale via the London Stock Exchange in 2017 in a first for a Scottish council.

Moody’s has already rated the Scottish Government as Aa3 and S&P Global has rated it as AA, both identical to the UK’s Sovereign rating and higher than major European and global economies.

The Scottish Government plans to sell an initial £1.5 billion of bonds to help fund important infrastructure plans.

The bond sale is due to begin later this year or in 2027, with fund managers arguing that shorter maturities would better protect buyers against possible constitutional change in Scotland.

Fund managers say the Scottish Government should keep the maturity of its planned bonds below 10 years, with some preferring debt securities closer to five years as Edinburgh works on its inaugural issuance.

Institutional investors’ concern is that any future move toward Scottish independence could change the credit profile behind the debt securities before longer-dated bonds are repaid.

Aaron Rock, head of rates at Aberdeen Group, said investors need to weigh up the implied UK support for Scottish bonds today against any uncertainty over future constitutional arrangements.

The risk premium linked to independence could rise further along the curve, meaning borrowing costs could increase as maturities extend.

The Scottish Government has already acknowledged that as a new issuer in the bond market, Scotland may pay a bit more to borrow than the UK.

Some investors argue that premium should reflect both the lower liquidity of an initial Scottish bond market and questions over the long-term sovereign support for the debt securities.

The maturity of the planned bonds was discussed on an investor call hosted by the UK’s Investment Association.