TCA Financial: The yield on some UK bonds – called gilt-edged securities or gilts - have turned negative after the Bank of England failed to find enough sellers as it ramped up its quantitative easing program.
The Bank had offered to buy UK government debt securities, or gilts, as part of its relaunched quantitative easing (QE) program but there were not enough sellers for the Bank to meet its quota. The Bank dusted off its £375 billion quantitative easing program last week as part of a bold stimulus plan designed to stave off economic headwinds the country is facing as a result of its decision to leave the European Union.
It plans to buy £60 billion of gilts but the lack of sellers means the price of gilts has risen and yields, which move inversely to prices, fell back with those maturing in 2019 and 2020 seeing returns fall to -0.1%
“This is the first time the Bank has been unable to find enough bonds to buy and suggests that holders – insurers, pension funds and commercial banks – are waiting until prices rise even further before selling them to the central bank,” said said Colin Phipps, chief economist at TCA Financial.
Bonds, particularly those of sovereign nations, are widely considered to be in a bubble with the assets offering little in the way of return despite the inherent risk of owning them.
“Right now, any institution buying the bonds of the world’s advanced economies will be doing so solely in the hope of being able to sell them on to a greater fool. There’s no point holding onto them until maturity because they don’t pay any yield so the only plus point is that yields may fall further and prices will rise enabling holders to book a profit purely on the sale,” explained Phipps.

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