The UK has just sold its first-ever negative-yielding government bond


The British Government Treasury building

Matthew Lloyd | Bloomberg | Getty Images

The UK borrowed at a negative interest rate for the first time on Wednesday, amid growing fears of a deep global recession and expectations of further bond-buying action from central banks.

At an auction on Wednesday, the country’s debt management office said it sold £3.8bn ($4.66bn) worth of three-year gilts at a negative yield of 0.003% .

This negative-yielding bond means the UK government is effectively being paid to borrow. Investors will get back slightly less than they originally paid if they hold the bond to maturity, such is the demand for bond money backing.

The auction means Britain has joined Germany, Japan and several other European countries in selling government debt at a negative yield.

the The Bank of England (BOE) cut its main interest rate to a record low of 0.1% in March and launched a further £200 billion ($245.49 billion) of bond purchases, mostly gilts, as part of its quantitative easing program.

Several members of the BOE’s monetary policy committee have since hinted that further monetary policy easing may be needed to mitigate the economic fallout from the coronavirus pandemic.

“When central banks discuss the rationale for their actions, reducing government borrowing costs is rarely a goal that is emphasized,” said Hugh Gimber, global markets strategist at JPMorgan Asset Management.

“But although not made explicit, the impact of the Bank of England’s rate cuts and increased asset purchases is clear from this morning’s groundbreaking gilt auction.”

Gimber suggested that with the UK Treasury unlikely to limit spending in the immediate future, BOE purchases are likely to continue to “ensure the government can fund its record levels of borrowing at record rates over the coming quarters”.


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