U.K.’s Two-Year Bonds Yield Less Than Japan’s for the First Time

The U.K. now offers lower returns on its debt than its Japanese peers, known for their ultra-low rates.

The yield on the U.K.’s two-year bonds declined to an all-time low of minus 0.129%, inverting the spread between the nations’ securities for the first time on record. The gaps on five- and 30-year bonds aren’t far off zero.

U.K.’s Two-Year Bonds Yield Less Than Japan’s for the First Time

That comes after U.K. growth figures for May missed estimates on Tuesday, showing the economy’s struggle to recover from the coronavirus lockdown and driving investors into havens such as gilts. Meanwhile, shorter-dated Japanese bonds have been backstopped by the country’s central bank, keeping yields steady.

“Unlike Japan, we don’t really know where the bottom is for GBP rates,” said Antoine Bouvet, a rates strategist at ING Groep NV. “Granted we are still some months away from a potential decision to slash interest rates below zero but if the euro zone or Switzerland is the template, then there is potential for GBP rates to go much lower than their JPY counterparts.”

The moves are the latest sign that European debt markets may be undergoing “Japanification,” a world of low yields, tepid inflation and little volatility. Some bond traders are speculating that the Bank of England could also follow its Japanese equivalent in trying to limit borrowing costs via so called yield-curve control.

Trading hours for both nations’ debt only coincide for an hour between 8 a.m. and 9 a.m. London time.

©2020 Bloomberg L.P.

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