×

UK yields hit new record lows after Carney hints at more QE

U.K. Gilt yields reached new record lows on Friday, as markets mull whether the Bank of England will reintroduce quantitative easing in the wake of the Brexit vote.

Yields on benchmark 10-year Gilts have slumped this week and continued to fall on Friday, reaching 0.801 percent in the morning. Yields are at the lowest level recorded by Reuters since 1994, the furthest back it has data.



UK Gilts

Symbol
Yield
 
Change
UK 2-YR
---
UK 5-YR
---
UK 10-YR
---
UK 30-YR
---

Bond yields move inversely to bond prices.

For the first time, yields on one U.K. Gilt, which matures in March 2018, tipped into negative on Thursday. This means in effect that Gilt holders will pay rather than receive interest on government debt.

On Friday, two-year Gilts crept higher to yield 0.179 percent.

"The U.K. is now officially through the looking glass, as the Brexit vote has pushed Gilt yields below zero for the first time. Remarkably markets are now expecting interest rates to lurch downwards, despite already being at record lows," Laith Khalaf, senior analyst at Hargreaves Lansdown, said in a report on Friday.

Gilt yields accelerated losses on Thursday after Bank of England Governor Mark Carney said the central bank would probably ease monetary policy over the summer. That would be as a result of policy uncertainty and a tighter financial environment following the U.K.'s vote last week to leave the European Union.

Traders' poll

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

As well as lower interest rates, policy easing could include the reintroduction of bond purchases by the bank. Increased demand for Gilts could push prices higher and yields still lower.

"The ultra-low interest rate environment paints a depressing picture of our economic prospects, though the Gilt market has been so heavily tainted by central bank interference, it's hard to know how reliable an indicator it is," Khalaf said.

Other countries where sovereign bond yields have turned negative include Germany, Switzerland and Japan.

"You have seen a global ramping down, once again... of bond yields and of interest rate expectations," Geoffrey Dennis, UBS head of emerging markets strategy, told CNBC on Friday.