For the first time in its 325-year history, the Bank of England has made the unprecedented move towards the unknown territory of negative interest rates.
In a dramatic move which will have long lasting effects for savers, Andrew Bailey, Bank of England Governor, said it would be “foolish” to rule out the cost of borrowing moving below zero.
A negative yield would effectively mean investors have to pay to lend money to fund the government’s response to the Covid-19 pandemic. June’s £3.8bn gilt auction by the debt management office (DMO) sold three-year government bonds with a yield, which indicates the interest paid, of -0.003%. In other words: they would get back less than they paid for them when the bonds mature in three years’ time.
The European Central Bank, which sets interest rates for the 19-member eurozone, and Japan have already adopted negative interest rates to stimulate borrowing and discourage saving leaving only the US Federal Reserve to follow suit.
So where does this leave investors?
With interest rates at an all-time low and set to fall into the uncharted waters of negative returns, commercial banks may soon be charged for holding cash deposits with the central bank and this leads to the possibility that the cost of holding money could be passed onto customers. Already savers are seeing the best Cash-ISA rates are only just above 1% and this popular form of investment is struggling to keep pace with inflation.
With the onset of the Covid-19 pandemic investors in equity have seen some of the biggest moves in the market, but even the brave holding onto their positions are facing, for the foreseeable future, no dividends in their investments.
Debt-based securities will be crucial in supporting businesses and developments over the next few years. Following the 2008/2009 financial crisis HM Treasury said that “These products will be important during the recovery as firms look to use asset finance for financing investment…” and now in 2020 these investments will not only help the recovery but offer an attractive investment for savers.
Since 2015 Propiteer Ltd have been instrumental in providing asset-backed debt-securities, now in this post Covid-19 era Propiteer Capital has built on this strength and moved to the next level with a listed bond programme designed to give great transparency, through being listed on pan-European stock exchanges and offering more dynamic funding and investor solutions.
Recommended Read: Cash May Be King, But Only If It Makes You Money