UK government bond yields reached new lows on Friday as the sector was bolstered due to the Bank of England measures together with economic instability.

Moving inversely to price, the yield on the 2-year bond or gilt fell to minus 0.122% in morning trading before gain some ground. The yield on the 5-year gilt dropped to minus 0.09% before rising.

“A negative yield on a bond means that investors who buy the government debt in the secondary market can expect to lose money if they hold it until it matures,” reported City AM.

The fall in bond yields was also driven by “rising speculation that the Bank of England will cut rates into negative territory in September,” said Michael Hewson, chief market analyst at trading platform CMC Markets.

For his part, Mike Riddell, a fund manager at Allianz Global Investors, noted: “We have had absolutely massive supply of gilts, but even bigger demand…The BoE has eaten up all the extra gilts.”

Andrew Bailey, the governor of the Bank of England said in May the policy of negative rates was under “active review”, having previously downplayed the chance of a cut below zero. 

The FT said on Friday: “Money markets are currently pricing in a cut to zero from the current level of 0.1% by the middle of next year, and a smaller chance of cuts into negative territory afterwards.” 

Nigel Green, founder and CEO of deVere Group, has previously told the media in the last two months that “negative interest rates are on their way.”

 

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