The recent apparent change of heart of the Bank of England Governor on negative interest rates largely explains why gilt yields are now below zero out to five years. But while the possibility of negative interest rates has certainly increased, the Bank may not have all its ducks in a row by its next policy meeting in mid-June or it may yet decide the risk of them undermining bank lending is too great. Either way, as we think that the Bank is going to have to provide much more policy support in some form at its future meetings, gilt yields are going to stay very low for a very long time.
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