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Negative Interest Rates Are Here


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Didn’t see this reported in any of the UK MSM..  but this is quite a landmark I believe:

 
 

LONDON (Reuters) - Britain sold a government bond with a negative yield for the first time on Wednesday, meaning the government is effectively being rewarded for borrowing after investors agreed to be repaid slightly less than they lent.

https://uk.reuters.com/article/uk-britain-bonds/britain-borrows-at-negative-interest-rate-for-first-time-idUKKBN22W1H5

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Posted (edited)

Since we only ever pay the interest on our national credit card and never the capital,  this means we can borrow with impunity..    until we need to roll it over and the rates go up of course :ph34r:

Edited by Libspero
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8 minutes ago, Libspero said:

Didn’t see this reported in any of the UK MSM..  but this is quite a landmark I believe:

 

 

https://uk.reuters.com/article/uk-britain-bonds/britain-borrows-at-negative-interest-rate-for-first-time-idUKKBN22W1H5

any politicans with brains would load up on this debt and use it to go on a massive infrastructure build - rail, road, etc.

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11 minutes ago, dgul said:

Government bonds often have negative real interest rates.

The specific thing that has happened is inflation rates have gone negative, ie, deflation.  Thus the nominal interest rates can go negative as well.

This is a bad thing.

Indeed.

Theres currency risk at play too.

Any EU entity loading up Gilts ~10 years ago will find they have made real loss due to Sterling falling.

The gormless idea that negative interest = inflation is nuts.

Inflation is too much money.

Negative IRs will cause banks to stop lending or go bust, removing vast amount of credit (debt) from UK economy..

 

 

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1 hour ago, spygirl said:

Indeed.

Theres currency risk at play too.

Any EU entity loading up Gilts ~10 years ago will find they have made real loss due to Sterling falling.

The gormless idea that negative interest = inflation is nuts.

Inflation is too much money.

Negative IRs will cause banks to stop lending or go bust, removing vast amount of credit (debt) from UK economy..

 

 

Banks won't lend at negative interest rates even if they may borrow at those rates.

This is just very cheap money for the government, banks and big industry.

You and small companies won't get a whiff of it.

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what Frank says, -ve rates aren't here *yet* but they could be coming...what you have witnessed is -ve bonds!......as posted in other threads, 'banana Britain', I called it first :P

The UK has sold bonds with a negative yield for the first time as a drop in inflation has highlighted how the Bank of England may need to take further steps to revive price growth back to its 2 per cent target. 

The country sold £3.8bn of three-year gilts at a yield of minus 0.003 per cent, according to the Debt Management Office. The slightly negative yield suggests investors who hold the debt to maturity will get back less than they paid, when accounting for regular interest payments and the return of principal. 
The UK had sold a one-month bill at a negative yield in 2016, but this represents the first time it has sold a conventional longer term bond at yield below zero.
Data released on Wednesday showed annual UK consumer price inflation nearly halved to 0.8 per cent last month — the lowest level in almost four years. Much of the decline was due to a plunge in the price of petrol, but some economists have warned the shock to demand caused by lockdowns could cause a wider disinflationary trend. 
The UK drew orders of £8.1bn in Wednesday’s auction, 2.15-times the amount the DMO was looking to sell. The robust demand underscores the appeal of gilts, long considered to be a haven due to the UK’s strong creditworthiness. It also suggests any fears over the large increase in borrowing the UK has undertaken due to the Covid-19 pandemic has not yet weighed on investor appetite for the debt. 

Wednesday’s auction comes during a growing debate into whether the BoE will need to reduce its main interest rate from its already historic low into negative territory, as policymakers attempt bring inflation back towards its target of 2 per cent and shield the economy from coronavirus-induced ructions. 
Moyeen Islam, rates strategist at Barclays, said the auction was a “symbolic hurdle”.
“Given recent comments from monetary policy committee members, the question of negative policy rates is far from settled,” he said.

The European Central Bank and Bank of Japan have already utilised negative rates, but they have faced criticism, especially from banks since it weighs heavily on the profitability of their traditional lending operations. 
“I can’t think of an economy where negative rates are a worse idea than the UK,” Kit Juckes, a strategist at Société Générale, said.
“The economic benefits are dubious but the power of a cocktail of negative rates and massive quantitative easing to weaken the currency seems clear and if the pound falls enough, it will make QE harder,” he said.

 

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6 hours ago, wherebee said:

any politicans with brains would load up on this debt and use it to go on a massive infrastructure build - rail, road, etc.

I think that sort of infrastructure is so yesterday, so 1930s, its the answer for people who don't know what the answer is.

Will be interesting to see after this what the demand for travel is, my guess is it will be lower than before and may stay that way.

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  • 1 month later...

Looks like we are being prepared for negative interest rates...

 

Quote

 

'A very big step': Are we heading for negative interest rates?

Taking the Bank Rate below zero would be a huge move, yet it is being seen in the City as increasingly likely.

Could interest rates in the UK go negative, as in the Eurozone, Switzerland, Japan, Sweden and Denmark?

With the next interest rate decision due from the Bank of England's Monetary Policy Committee on 18 June, the debate has gained fresh impetus, due chiefly to two developments.

The first, on 17 May, was an interview given by Andy Haldane, the Bank's chief economist, to the Sunday Telegraph in which he said pushing rates below zero was "something we'll need to look at - are looking at - with somewhat greater immediacy". Shortly after that, the Bank's governor, Andrew Bailey - who had previously set his face against negative rates - told MPs such a policy had to be kept "under consideration".

 

 

 

https://news.sky.com/story/a-very-big-step-are-we-heading-for-negative-interest-rates-11998736

 

 

 

Edited by muggle
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And again...

 

Quote

 

Bank of England (BOE) governor Andrew Bailey has issued a warning to lenders on the potential challenges of negative interest rates.

According to a report in The Sunday Times, the a letter sent to lenders said negative rates are "one of the potential tools under active review" by the central bank due to the economic fallout of the coronavirus.

This could come into play if the monetary policy committee (MPC) decides more stimulus is needed to hit the bank’s 2% inflation target.

If rates turn negative, this would be the first time this has happened in the institution’s history.

In theory negative rates make spending more attractive than saving thus stimulating economic activity.

Rates are already at a record low, having been cut to 0.1% in response to the economic fallout from the coronavirus.

 

 

https://uk.finance.yahoo.com/news/bank-of-england-issues-warning-on-challenges-of-negative-interest-rates-090315956.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvLnVrLw&guce_referrer_sig=AQAAAMINh9PjmqvWwlDlA5PUBTrZLlnGq20XvPjCL-Qjg-Kbj-1HPtSw3dzynpJoCirKItmxkc0Znm5PgoD4e-47Mj4JHXRb2VSTrSXM2CfHbYuKnuboSzTwK0jSfvOTX46qEadGBfd-O4c7NrIW6VzcBVQ2Q8fqZ0krvl6MmHF5ADrz

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Gulp.

 A do feel these times are far more of a paradigm shift than the bank collapse a decade or so ago. Negative rates were talked of then to.

The insiders, the brave and the lucky will make.

This aspect is just but one of a flock of black swans at present.

We are sailing into dark waters.

 

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10 minutes ago, Long time lurking said:

I thought Germany have been selling bonds on and off at negative rates for quite a while ?

Bonds at negative rates is a nuance.

They're created at a positive or zero rate and then auctioned off -- the auction price then sets the yield.  If the demand is high enough then the yield will be negative, but it is just the market being the market.

The latter talk of 'negative rates' is the government specifically taking money off cash accounts held at the bank of England by the banks -- ie, discouraging them holding cash.

This might then move to regular bank accounts having negative rates.

It never ever means the banks giving you money for having a loan.

This latter point is weird, as it is exactly this sort of thing that they're trying to achieve (giving an incentive to having a loan).

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1 hour ago, The Grey Man said:

Gulp.

 A do feel these times are far more of a paradigm shift than the bank collapse a decade or so ago. Negative rates were talked of then to.

The insiders, the brave and the lucky will make.

This aspect is just but one of a flock of black swans at present.

We are sailing into dark waters.

 

It’s exciting in a perverse way

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