June 1, 2020 / 10:11 AM / a month ago

REFILE-UPDATE 1-More than one trillion pounds of UK gilts had negative yields in May, Tradeweb shows

(Refiles to change reference to Tradeweb data in paragraph 4)

By Dhara Ranasinghe

LONDON, June 1 (Reuters) - The market-value of UK government bonds on the Tradeweb platform with negative yields stood at more than one trillion pounds ($1.24 trillion), or almost 45% of the total market as of the end of May, data released on Monday showed.

Britain last month sold negative-yielding government bonds for the first time at an auction. Short-dated bond yields have dropped below 0% on growing speculation that the Bank of England may follow the European Central Bank and Bank of Japan in adopting negative interest rates.

According to numbers provided by the electronic trading platform, 1.07 trillion pounds worth of gilts had negative yields as of the end of May out of a total market worth around 2.4 trillion pounds.

The data on UK government bonds was provided by Tradeweb on request, therefore a comparison with April numbers is unavailable.

British gilt yields out to four years have negative yields. Yield on bonds with a six-year maturity are also trading just below 0%, having fallen in response to the economic shock from the coronavirus crisis and expectations for further monetary stimulus.

According to Refinitiv data, the entire gilt curve was above 0% just a month ago. BoE Governor Andrew Bailey said last month he was less opposed to negative interest rates than before the coronavirus crisis escalated, but that there were “mixed reviews” about how well they had worked for other central banks. “There’s clearly an active debate within the MPC (Monetary Policy Committee) about the benefits and costs of negative rates, and it’s not unreasonable for the market to price these risks in,” said Ross Hutchison, rates fund manager at Aberdeen Standard Investments.

“The risks are clearly asymmetric at this point in time, as even if negative rates are unlikely in the UK – they are still more likely than rate increases in the near future.”

The market value of negative-yielding euro zone government bonds on Tradeweb’s platform rose to around 4.73 trillion euros ($5.27 trillion) or about 56% of a total market worth 8.4 trillion euros as of the end of May.

That was up from around 4.5 trillion euros at the end of April and was the highest since February.

The pool of negative-yielding investment-grade corporate bonds also grew last month, to around 99 billion euros from around 71 billion euros at the end of April, Tradeweb said.

($1 = 0.8061 pounds) ($1 = 0.8979 euros)

Reporting by Dhara Ranasinghe, editing by Larry King

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