UK sells its first ever negative-yielding government bond

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Debt Management Office reveals £3.8bn sale of three-year gilts at a yield of minus -0.003 per cent

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The United Kingdom borrowed at a negative rate of interest for the first time in its history on Wednesday, in the latest indication of the marked economic impact of the Covid-19 crisis.

Britain’s Debt Management Office revealed that it sold £3.75bn ($4.6bn, €4.2bn) worth of three-year gilts at a yield of -0.003 per cent. Demand for the sale was in excess of £8.1bn, reflecting the sheer level of uncertainty in the markets and investor interest in safe-haven assets.

Japan, Germany, Sweden and a range of other European nations have already in recent history sold debt yielding less than 0 and now Britain joins the ranks of governments to which investors have effectively paid to lend money to.

While anxiety about negative rates has increased in recent months, the sale has, nonetheless, come as a surprise. Only last week Bank of England Governor Andrew Bailey ruled out taking Britain’s main interest rate negative, stating: “It is not something that we are currently planning for or contemplating,” but on Wednesday changed tack, saying it is “foolish” to rule it out.

Bailey’s American counterpart Jerome Powell has maintained his opposition to negative rates, however, with rates already near zero, hikes highly improbable, government spending rampant and quantitative easing in full flow, there is growing belief on both sides of the Atlantic that such a policy is not off the cards.

Such an eventuality would not be welcomed by the so-called Bond King Jeffrey Gundlach. The American billionaire stated earlier this month: “These trillions Treasury is borrowing is heavily in T-Bills. Chair Powell has stated in plain English he is opposed to negative interest rates. Yet the pressure to go negative on Fed Funds will build as short term borrowing explodes and dominates.”

Reacting to even the idea of such an outcome, Gundlach said: “Please, no. Rates < 0 = Fatal.”

 

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