The UK Treasury has on several occasions since 2016 sold short-term, one or three-month bills at a negative yield, but this is the first time a
longer maturity bond has gone negative.
The UK issued its first bond with a negative yield as investors prepared for the possibility that Britain joins other European countries in
having negative interest rates.Comments from UK central bank officials in recent days fueled speculation among investors that the
country may set benchmark interest rates below zero, as part of efforts to support the economy during the coronavirus pandemic. The policy
rate is currently 0.1%.
Some investors have sought to lock in yields near zero ahead of any cut. On Wednesday, the UK sold three-year government bonds, known as gilts,
with a negative 0.003% yield. That was the first auction result below zero, meaning the government is being paid by investors to borrow from
them.Yields on existing bonds maturing in two and three years have traded in negative territory in recent days. The midpoint yield on
existing 3-year UK government bonds was 0.004% Wednesday, according to Tradeweb. The yield on the 2-year gilt was minus 0.027%.The
Bank of England’s chief economist, Andy Haldane, said in an interview published Saturday that the central bank was looking at negative
rates. BOE Gov. Andrew Bailey said last week the bank wouldn’t rule them out. When rates go negative, central banks charge commercial banks
to hold deposits rather than pay them interest, spurring them to lend more.The UK Treasury has on several occasions since 2016 sold
short-term, one or three-month bills at a negative yield, but this is the first time a longer maturity bond has gone negative.
“They have willingly talked about negative rates as a concept and allowed the debate to intensify, but if you say to a policy maker ‘Would you cut
interest rates below zero?’, they’re not going to rule anything out,” he said. “Then people go ‘he was saying negative rates were possible’
and then it becomes more self-fulfilling.”