Gilt yields head below zero

Yields on gilts – UK government bonds – have gone negative, meaning investors are paying the Treasury to borrow money from them.

The government last week sold a three-year gilt with a fractionally negative yield of -0.003%, meaning that investors were effectively paying the Treasury to borrow money from them. In a further sign that central banks’ quantitative easing is forcing market prices through the looking glass, the yield on the five-year gilt also went negative for the first time, hitting -0.003% at the end of last week.  

Investors who buy and hold these negative-yielding bonds to maturity will make a small loss. Some hope that the global bond rally will enable them to sell them on at a capital gain, but others may simply have concluded that with the growth outlook shaky there are no better options. 

Markets have been spooked by poor data, particularly April’s sluggish 0.8% inflation reading, says Paul Dales for Capital Economics. Yet the key factor is interest rates. The Bank of England has said that negative short-term interest rates are under “active review”. UK interest rates currently sit at just 0.1%. In every sense, the outlook has “all gone a bit negative”. Interest rates on much of the continent and in Japan are already below zero. If the UK follows suit then expect pensions annuities to fall and pension scheme deficits to rise, says James Coney in The Sunday Times. If you think the past decade has been a grim one for savers, “you ain’t seen nothing yet”.

Recommended

The charts that matter: China’s recovery bolsters the yuan
Global Economy

The charts that matter: China’s recovery bolsters the yuan

China's strengthening currency is a sign of confidence in the country's economic recovery. John Stepek looks at the yuan chart, and all of the others …
19 Sep 2020
The charts that matter: has the dollar’s rally paused, or is it over?
Global Economy

The charts that matter: has the dollar’s rally paused, or is it over?

The US dollar ended the week higher, although off its highest point. Is that it? John Stepek looks at how it's affected the charts that matter most to…
12 Sep 2020
The charts that matter: a correction for gold and better news on US jobs
Global Economy

The charts that matter: a correction for gold and better news on US jobs

Having ended on a record high last Friday, gold took a big tumble this week. John Stepek looks at the gold price chart, along with the others that mat…
15 Aug 2020
The charts that matter: precious metals, longevity and a cure for baldness
Global Economy

The charts that matter: precious metals, longevity and a cure for baldness

As the gold price presses on to new highs, John Stepek looks at he charts that matter most to the global economy.
8 Aug 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Central banks want politicians to take charge – but what will they do?
US Economy

Central banks want politicians to take charge – but what will they do?

The US Federal Reserve has come to the end of the road in terms of what it can do to accelerate any recovery, says John Stepek. It's over to the polit…
17 Sep 2020