UK government sells first bond with negative yield

Investors paid the UK government to borrow money for the first time on Wednesday as Britain sold a bond at a negative yield.

A £3.75bn auction of government bonds included a gilt that matures in July 2023 sold at an average yield of -0.003%, the Debt Management Office said. Buyers will be paid 0.75% but they paid above face value in the auction, reducing the yield to less than zero.

The sale means Britain joins Japan and Germany in selling government debt with a negative yield with central bank interest rates at record lows. Yields for two-year gilts dropped to a record low of -0.051% last week. The yield is the return a bond buyer is willing to accept to lend money.

Bank of England officials have said the central bank is considering further monetary loosening measures to support the economy including more purchases of bonds and – possibly – cutting interest rates to less than zero from a record low of 0.1%.

The government needs market appetite for gilts, the name for UK government bonds, to hold up as it borrows hundreds of billions of pounds to fund measures during the Covid-19 crisis. Chancellor Rishi Sunak has said he is prepared to increase borrowing with government debt costs low.

Wednesday's gilt sale was 2.15 times covered by demand in the auction - the weakest demand since the BoE cut rates to current levels.