for the first time UK has sold medium-term Treasury bonds with a negative yield after inflation reduced the prospects that the Bank of England will cut official interest rates below zero.
At the auction on Wednesday, the Directorate of debt management (Debt Management Office, DMO) stated that he had sold three-year government bonds at 3.8 billion pounds ($4.66 billion) with a yield of minus 0.003% of the.
The purchase of bonds with negative yields means that the British government will actually pay extra for the borrowing. Investors will receive slightly less than they originally paid, if they hold the bonds to maturity, these are the requirements for the storage of money in bonds.
Thus, the UK joined Germany, Japan and several other European countries, which convinced investors to accept a negative income.
In 2016 the UK has sold one-month Treasury bills at a negative yield, but this was the first case when longer-term bonds were sold with a yield below zero.
The yield of high-reliable government bonds is sensitive to the expectations of the city of London regarding the future level of interest rates, and a fall in the annual inflation rate from 1.5% to 0.8% caused speculation that the Bank of England could further reduce official borrowing costs, even below the historic low of 0.1%.
Governor of the Bank of England Andrew Bailey (Andrew Bailey) has made clear that negative rates, which affect the profit of commercial banks are unlikely to be the first Bank if he feels the need to provide additional stimulus to the economy.
Since then, several members of the Committee on monetary policy by the BOE hinted that a further easing of monetary policy may be necessary for mitigating the economic impact of the pandemic coronavirus.
“When Central banks discuss the justification for their actions, reducing the cost of government borrowing is rarely a goal, which emphasizes" — said Hugh Gimber (Hugh Gimber), a strategist for global markets at JPMorgan Asset Management.
“Although it is not explicitly say, but the relationship between the reduction of interest rates by the Bank of England and an increase in asset purchases is quite obvious due to today's revolutionary auction”.
DMO conducts frequent auctions of government bonds to pay for additional government borrowing due to the continuing stay of the economy.
Despite fears that the government will have to offer higher yield to investors to convince them to Fund the highest borrowing in time of peace, the demand for treasuries was high.
According to the DMO, applications for the purchase of Treasury bonds maturing in July 2023 total $ 8.1 billion pounds ($9.9 billion), more than double the offer of 3.75 billion pounds ($4.6 billion).
Keith Jukes (Kit Juckes), a macro strategist at Société Général, said that the Bank of England it would be a bad idea to lower interest rates below zero. “Personally, I can't imagine another economy where negative rates would be a worse idea than in the UK.»
Materials on this topic can also be read:
Sells UK government bond with negative yield for first time (The Guardian)
The UK just sold its first ever negative-Kareem kniesel government bond (CNBC)
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