Gilt yields go negative for first time

Added 1st July 2016

Gilt yields have gone negative for the first time in the wake of Mark Carney’s speech on the economy yesterday afternoon.

Gilt yields go negative for first time

Carney made a series of dovish comments on the United Kingdom’s post referendum prospects and opened the door to an interest rate cut in the summer, or other monetary stimulus measures.

The March 2018 bond is now yielding -0.04%, representing uncharted waters for UK government debt.

This development runs contrary to the comments from some of the credit ratings agencies, who have indicated they may cut the UK’s AAA rating down a notch due to Brexit concerns. That would imply greater credit risk and therefore yields should in theory climb, but the markets are not playing ball.

Through the looking glass

The UK is far from the first country to see negative yield on its government debt as this has already been triggered in Germany, Austria, the Netherlands, Denmark, Switzerland and Japan.

“The UK is now officially through the looking glass, as the Brexit vote has pushed gilt yields below zero for the first time, said Laith Khalaf, senior analyst at Hargreaves Lansdown. “Remarkably markets are now expecting interest rates to lurch downwards, despite already being at record lows.”

“The ultra-low interest rate environment paints a depressing picture of our economic prospects, though the gilt market has been so heavily tainted by central bank interference, it’s hard to know how reliable an indicator it is,” he added.

Over on the equities side of things the FTSE 100 held onto its big gains from yesterday and nudged up another 25 points to 6530 by mid-morning.

Sister index the FTSE 250 could not match this though, sliding back by close to 1% to 16,120.  

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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