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UK government bonds turn negative in historic rally 

August 10, 2016

Adam Samson & Michael Hunter, Financial Times

UK government bond yields entered negative territory on Wednesday, extending a historic rally after the Bank of England stressed its commitment to buy up gilts in a bid to stimulate the economy.

Such was the demand for near-term UK debt that yields on government paper due in March 2019 and March 2020 fell to minus 0.017 per cent and minus 0.015 per cent, respectively. In effect, investors are paying to hold the debt to maturity.

The amount of global negative-yielding debt has now risen to $12.64tn according to Tradeweb, and is dominated by European and Japanese bonds.

Only once before have gilt yields turned negative — briefly following the UK’s vote to leave the EU. The slide back has raised investor expectations that the UK is joining a club of nations, dominated by Japan and Europe, with negative-yielding government debt.

The yield on 10-year benchmark debt hit a record low on Wednesday, falling 3.9 basis points to 0.541 per cent. The benchmark was yielding 1.40 per cent before the Brexit vote in June. Read more

 
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