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

What changes to the pensions charge cap mean for you
Pensions

What changes to the pensions charge cap mean for you

The government could raise the pensions charge cap – the amount you can be charged in your workplace's default pension fund. Saloni Sardana explains w…
27 Sep 2022
The best student bank accounts
Personal finance

The best student bank accounts

As we approach the start of an academic year, Ruth Jackson-Kirby rounds up what you should look for when choosing a student bank account and outlines …
27 Sep 2022
Earn 4.1% from the best savings accounts
Savings

Earn 4.1% from the best savings accounts

With inflation topping 10%, your savings won't keep pace with the rising cost of living. But you can at least slow the rate at which your money is los…
27 Sep 2022
The best offers for switching banks – earn up to £175
Personal finance

The best offers for switching banks – earn up to £175

You can earn up to £175 by switching your current account. Here are the best offers on the market today.
27 Sep 2022

Most Popular

Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
The pick of this year's best-performing investment trusts
Investment trusts

The pick of this year's best-performing investment trusts

Market conditions haven’t been easy, but these investment trusts have delivered strong growth, says David Stevenson.
23 Sep 2022
The hidden cost of employee share schemes
Investment strategy

The hidden cost of employee share schemes

Paying employees in shares comes at a cost to investors – but it isn’t always easy to see how much, says Stephen Clapham.
26 Sep 2022