UK sells negative bond yields for first time
LONDON, United Kingdom – Britain on Wednesday, May 20, sold bonds for the first time at a negative yield, meaning investors are paying to own haven sovereign debt as they shelter from coronavirus turmoil.
The United Kingdom debt management office said it had raised £3.75 billion ($4.6 billion, 4.2 billion euros) at an average yield of minus 0.0003% for bonds maturing in 2023.
That means investors are effectively charged to park their cash in bonds, which are in keen demand as COVID-19 sends the global economy into a dizzying downturn.
The development has sparked fresh debate over negative interest rates from the Bank of England (BoE), whose governor Andrew Bailey stated on Wednesday that the policy has not been ruled in or out.
BoE chief economist Andy Haldane has meanwhile hinted at the possibility of negative interest rates, with Britain set to endure its deepest recession for centuries according to the central bank.
In response to the pandemic, the BoE slashed its main interest rate to a record-low 0.1% and pumped an extra £200 billion into the UK economy to encourage retail banks to lend to hard-hit businesses under so-called quantitative easing (QE).
Questioned about whether the bank would contemplate either buying riskier assets under QE – or sending interest rates into negative territory, Bailey told a parliamentary committee on Wednesday: "We do not rule things out as a matter of principle – that would be a foolish thing to do. But...that doesn't mean that we rule things in either."
"Given what we have had to do in the last few weeks, it would be no surprise to learn that of course we are keeping the tools therefore under active review in the current situation."
Could become 'counterproductive'
He added: "We are very keen to observe...how the economy responds to the cuts that we have made because we cut rates nearly to zero now.
"We are particularly keen to observe that, bearing in mind arguments that are made...that the effects of cuts weaken as you get nearer to the zero band and could even become counterproductive."
Britain's economy shrank in the 1st quarter at the fastest pace since the global financial crisis as the country went into coronavirus lockdown.
The downturn is set to be far worse in the current 2nd quarter, which would officially put the UK in a recession.
Negative bond yields meanwhile marked a historic day for Britain on Wednesday, said OANDA analyst Edward Moya.
"History was made today when Britain sold its 2023 gilt with a negative yield," said Moya.
"This was the first UK maturity with a negative yield, marking another European country to join the negative-yielding government debt camp," he added.
Others included Denmark, France, Germany, and Switzerland, Moya noted. – Rappler.com