FAST FIVE: UK Sells Negative-Yielding Debt For The First Time

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The UK drew orders of £8.1bn in Wednesday's auction resulting in a 2.15 bid to cover to the amount the DMO was looking to sell.

The UK 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.

According to Nomura, the most important reasons behind the fall were: 1) falling household energy bills, where the lower price cap in April led to a 3.6% m-o-m drop in gas bills versus a 9.2% m-o-m rise in April last year (as a result household energy took nearly 0.4pp off headline inflation between March and April), 2) the largest fall yet in petrol prices in response to lower oil prices since the start of the year (a fall of nearly 8% m-o-m versus a 2.6% m-o-m rise in April last year, taking 0.3pp off headline inflation) and 3) a regulatory-imposed reduction in household water bills (down 1.7% m-o-m compared with the April 2019 monthly rise of 2.7%).

Taken together those three factors can account for pretty much the entirety of the 0.76pp decline in headline CPI inflation between March and April.

Against the backdrop of a protracted period of below-target inflation, and in order to preempt any liquidity disruption in bond markets associated with the exhaustion of the MPC's existing asset purchase program, Goldman said it “continues to expect the Bank of England to announce an additional £100bn of quantitative easing at its next decision on 18 June.” “With inflation now more than 1 percentage point below target, the governor of the Bank of England will .

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