UK sells negative bond yields for first time

Britain on Wednesday sold bonds for the first time at a negative yield, meaning investors are paying to own haven sovereign debt as they shelter from coronavirus turmoil.

The UK debt management office said it had raised £3.75 billion ($4.6 billion, 4.2 billion euros) at an average yield of minus 0.0003 percent for bonds maturing in 2023.

That means investors are effectively charged to park their cash in bonds, which are in keen demand as COVID-19 sends the global economy into a dizzying downturn.

The development has sparked fresh debate over negative interest rates from the Bank of England, whose governor Andrew Bailey stated Wednesday that the policy has not been ruled in or out.

BoE chief economist Andy Haldane has meanwhile hinted at the possibility of negative interest rates, with Britain set to endure its deepest recession for centuries according to the central bank. In response to the pandemic, the BoE slashed its main interest rate to a record-low 0.1 percent and pumped an extra £200 billion into the UK economy to encourage retail banks to lend to hard-hit businesses under so-called quantitative easing (QE).

Questioned about whether the bank would contemplate either buying riskier assets under QE - or sending interest rates into negative territory, Bailey told a parliamentary committee on Wednesday: "We do not rule things out as a matter of principle - that would be a foolish thing to do. But ... that doesn't mean that we rule things in either."

"Given what we have had to do in the last few weeks, it would be no surprise to learn that of course we are keeping the tools therefore under active review in the current situation."

He added: "We are very keen to observe ... how the economy responds to the cuts that we have made because we cut rates nearly to zero now.

"We are particularly keen to observe that, bearing in mind arguments that are made ... that the effects of cuts weaken as you get nearer to the zero band and could even become counter-productive."