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British bonds go negative as Bank of England plans more money creation

Section: Daily Dispatches

Carney Prepares for 'Economic Post-Traumatic Stress'

By Emily Cadman
Financial Times, London
Friday, June 30, 2016

The Bank of England is preparing to unleash another round of monetary stimulus as it battles to contain the economic fallout of The UK’s decision to leave EU.

In a stark warning to politicians, governor Mark Carney said a downturn was on its way and Britain was already suffering from "economic post-traumatic stress disorder."

He said the central bank would take "whatever action is needed to support growth," which probably included "some monetary policy easing" in the next few months, in an attempt to reassure the markets and the public.

But Mr. Carney also said that central bankers could do only a limited amount to mitigate the pain.

Sterling fell more than 1 percent to $1.32 as traders began preparing either for rates to be cut to historic lows, more quantitative easing, or a combination of both. The pound hit $1.50 just before the results of the referendum on EU membership last week. Equities rose, with the FTSE 100 index closing up 2.3 percent on the day.

British government bond yields entered negative territory for the first time following Mr. Carney's speech, with the yield on one two-year bond hitting -0.003 percent. This put the UK alongside countries with negative yields including ­Germany and Japan. The global figure for government bonds in negative yield has soared to $11.7 trillion as borrowing costs around the world collapse. ...

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