United Kingdom government sells first bond with negative yield

A British pound note is seen in front of a stock graph in this

A British pound note is seen in front of a stock graph in this November 7, 2016 picture illustration.

Earlier today the BoE auctioned £3.75bn of gilts maturing in July 2023 with an average yield of -0.003% - this marks the first time the United Kingdom has borrowed at a negative rate.

A £3.75bn auction of government bonds included a gilt that matures in July 2023 sold at an average yield of -0.003%, the Debt Management Office said.

While investors will receive an annual interest payment of 0.75%, they paid above face value for the bond so the actual return in cash terms is less than they have lent.

Andrew Bailey, the Bank's Governor, has so far rejected negative interest rates as a policy though pressure is mounting as several colleagues including chief economist Andy Haldane have raised the idea.


It comes as investors have been pricing in the possibility of negative United Kingdom interest rates - with bond prices having rallied recently as a number of Bank of England policymakers have said they might consider cutting rates below zero. Financial markets increasingly expect the base rate to go negative.

Negative interest rates potentially challenge some banks' and building societies' solvency as they find it hard or impossible to apply them to customers' savings accounts. Yields for two-year gilts dropped to a record low of -0.051% last week.

It means the United Kingdom has joined the likes of Germany and Japan in selling its government debt at a negative yield as coronavirus sees the world lurch towards a steep recession, with central banks embarking on mammoth bond-buying programmes to offer economic life support.

Wednesday's gilt sale was 2.15 times covered by demand in the auction - the weakest demand since the BoE cut rates to current levels.

Related:

Comments

Latest news

Every adult in England is now automatically an organ donor by law
Dad Joe, 37, said: "We never thought about organ donation, at the time we thought Keira would pull through". Campaigners hope the law will lead to an additional 700 transplants each year by 2023.

Netflix says it will begin deactivating inactive accounts
With stay at home orders issued across the globe, more than 15 million subscribers joined Netflix in the first quarter of 2020. Netflix has announced a pretty nice gesture for those who are subscribed, but haven't been watching anything on it.

Pakistan Airlines flight crashes in Karachi
A Pakistani airliner with more than 100 people aboard crashed in the southern city of Karachi on Friday, according to reports. The flight which was on its way from Lahore to Karachi , was approaching for a landing when it crashed near the airport.

HBO Max Will Be Available on PS4 and Xbox One at Launch
Over the years, there have been various iterations to respond to shifts in viewing behavior. How much is it? Do I have to sign a contract? No.

COVID 19 detection dogs research: the UK Government gives £500,000
The lead researcher on the project, Professor James Logan, is confident the preliminary trial will yield productive results. For quick detections, the United Kingdom government has employed their most valuable and fiercest agents out there.

Other news