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UK government bonds go negative for first time

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Negative yields have hit the UK gilt curve for the first time ever today following lower-than-expected appetite for the Bank of England’s gilt buybacks.

The yield on the 4.75 per cent March 2020 gilt dropped to -0.012 per cent just after 8am on Wednesday morning, along with the 3.75 per cent September 2019 gilt. The 4.5 per cent March 2019 gilt dropped to -0.010 per cent.

In April, MPC member Gertjan Vlieghe said that theoretically rates could go a “little bit negative”.

Outside the UK, the entire stock of Swiss government bonds turned negative on 1 July, just one week after Brexit, when yields on the Swiss 2064 dropped below zero.

In July, the German government issued its first 10-year bonds at auction with negative yields as investors choose safety over return on capital.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I’m no investment expert, but doesn’t this show confidence in the UK post Brexit as the demand for the gilts is so high that the government doesn’t need to offer any interest in order for folks to want to buy them?
    And those that already have interest paying gilts obviously don’t want to sell them back…
    All sounds like GOOD news to me.

    • Pensions Manager 16th August 2016 at 10:45 pm

      It shows confidence in Britain to pay its debts, but may mean employers with DB pension plans having to pay more towards pension deficits, rather than rewarding shareholders – e.g. IFA clients, and many others, who may be inclined to spend less as the investment outlook looks less rosey, causing a further reduction in demand perhaps, causing less growth and even recession.

      Or Government may borrow more at low interest rates and invest – in FCA consultations and studies perhaps? Or hopefully infrastructure and houses?

  2. very good points Pensions Manager, does that still sound good to you Phil ?

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