Daily Management Review

UK places government bonds with negative yield


On Wednesday, the UK placed government bonds maturing in July 2023 in the amount of 3.8 billion pounds ($ 4.66 billion).

Images George Rex
Images George Rex
The weighted average yield of bonds during the auction held by the British Debt Management Office (DBO) amounted to minus 0.003% per annum.

Thus, UK government bonds were first placed with negative yield. That is, in fact, investors pay the UK government for borrowing from it.

Demand for bonds maturing in July 2023 amounted to 8.1 billion pounds, that is, it exceeded the offer by more than two times, DBO reported. The high demand for British government securities, always considered a reliable asset, shows that investors are not too worried about the growing volume of UK borrowing in the wake of the COVID-19 coronavirus pandemic, the Financial Times writes.

The sharp decline in inflation in the country in recent years has caused a debate about whether the Bank of England will need to lower its base interest rate, which is currently at 0.1% per annum, below zero in order to spur consumer price increases.

Inflation in the UK in April slowed to the lowest level since August 2016 of 0.8% in annual terms (1.5% in March), with the Central Bank target of 2%.

The European Central Bank and the Bank of England have long adhered to a policy of negative rates, which, however, is criticized by banks because it puts serious pressure on their income from credit operations.

source: ft.com