The Bank of England is currently weighing up options to help the economy get through a recession caused by the coronavirus pandemic. Part of this is the possibility that the UK would start selling bonds with a negative yield and investors would be paying the government to keep their money safe, rather than receiving a return on their deposits.
Coker said: “Many entities would rather accept a small loss of capital realised by buying negative yielding bonds simply to insure they’ll be able to have full access to their capital going forward.” He argues that many “cash rich entities” do not trust commercial banks to return their money now due to the existing “bail in” policies of troubled financial institutions.
He added: “Interest rates will always reflect the price at which trades will clear. Rates are negative because demand for bonds is high. Negative interest rates are telling us the present uncertainty may persist, or even get worse, for a protracted period of time.”