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UPDATE 1-Coronavirus shock sends benchmark UK bond yields negative for 1st time

Andy Bruce

time@ (Adds reaction from economist, detail)

LONDON, March 9 (Reuters) - Yields on benchmark British government bonds turned negative for the first time ever on Monday as investors rushed to the safety of gilts to protect themselves against the feared economic shock of the coronavirus.

The yields on benchmark gilts - used as yardsticks for pricing other debt - turned negative for two-, three-, four-, six- and seven-year maturities as the market opened, according to Refinitiv data, before turning positive an hour later.

Including non-benchmark gilts, 11 bonds fell into negative-yielding territory - in effect meaning investors are willing to lose money in exchange for the safety of parking their cash in British government bonds.

The record-low borrowing costs could make it easier for finance minister Rishi Sunak to announce an increase in public spending when he delivers the government's first post-Brexit budget on Wednesday.

Although some yields for non-benchmark gilts turned negative shortly after the 2016 Brexit referendum, Monday was the first time that benchmark gilt yields, used as references for corporate debt issues of similar maturity, fell below zero.

The FTSE 100 index of top British companies plunged by 8%, the biggest drop since the financial crisis, after Saudi Arabia cut its official oil prices in a market already reeling from the impact of the coronavirus on global demand.

"The Saudi... oil price fall is clearly breaking the camel's back here," said Marc Ostwald, chief economist at ADM Investor Services, on the collapse in gilt yields.

"The extent of the moves reflects the fact that financial markets are starting to look at the fact that central banks can't get us out of this, and secondly we have no idea what the shock is going to be."

The 2-year gilt yield fell as low as -0.035% at 0813 GMT, but later turned positive and was trading at 0.031% at 0945 GMT, down 6 basis points on the day.

Yields touched new record lows across the range of maturities. The 30-year gilt yield, which ended last year at 1.33%, fell as low as 0.387% on Monday.

Later on Monday, the Bank of England will hold an auction to buy short-dated gilts from investors to maintain its holding of government bonds that it purchased through its quantitative easing stimulus programme at 435 billion pounds.

During previous market shocks - such as in August 2016, shortly after the Brexit referendum - it sometimes failed to buy as many gilts as it wanted through its repurchase operations.

Results of the reverse auction are due at 1445 GMT.

June long gilt future 139.17 (+1.08)

June 2020 short sterling 99.6 (+0.035)

Dec 2020 short sterling 99.62 (+0.025)

10-year gilt yield 0.13 (-10.5 bps)

-------------------KEY MARKET DATA---------------------------

Long Gilt futures Gilt benchmark chainShort Stg futures Cash market quotesDeposit rates Sterling cross rates

UK debt speedguide

-------------------KEY MARKET REPORTS--------------------------

Gilts SterlingEuro Debt DollarU.S. Treasuries Debt reports--------------------GILT STRIPS DATA -------------------------Gilt strips data All gilt stripsGilt strips IO Gilt strips PO

(Editing by William Schomberg)

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