UK Gilt Auction: Negative Rates.

The UK Government, HM Treasury is borrowing money to fund its day to day operations as tax revenues (income) are lower than government expenditure. Now with the Covid19 pandemic, HM Government is tapping the bond market to borrow money by issuing Gilts.

The British Government sold a government bond with a negative yield for the first time.

On Wed 20th May 2020, the British Government borrowed £3,869.6240 Million (£3.869624 Billion).

The Yield at Auction Price was -0.003%

That means at the end of the 12 months, the Gilt owner would have had their oringial capital reduced by 0.003%.

It is a 3 year gilt.


£3,869.6240 Million on the 20th May 2020:

Capital reduced by 0.003% after year 1 = £3869.507911 Million
Capital reduced by 0.003% after year 2 = £3869.391826 Million
Capital reduced by 0.003% after year 3 = £3869.275744 Million

So after 3 years years the initial capital of £3,869.6240 Million becomes £3869.275744 Million.

A capital reduction of 0.348256 Million = £348,256.

In effect, negative yield effectively means investors have to pay to lend money to fund the government’s response to the Covid-19 pandemic. In searching for a safe haven for their money they bought gilts knowing they would get back less than they paid for them when the bonds mature in three years’ time, because it Trusts the UK Government

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