What is happening now with negative rates in the UK?

  • Over £673bn in SONIA OIS swaps have traded at negative rates in 2021.
  • Expectations for negative rates have been severely reduced since the last MPC meeting.
  • This year, swaps as long as 4 years have recorded negative rates.
  • We look at what has traded and current timing expectations.

In May of last year, I wrote about ramping up market expectations for negative rates in GBP.

As of the 2021 February 4th MPC meeting, the door is still being left wide-open for negative rates to be implemented:

But! All I hear talk about recently are reflation trades and the increase in global bond yields:

So whilst yield curves may continue to steepen whilst the reflation trade is flavour of the quarter, it got me wondering as to where we are with negative rates? Are they still a possibility in the UK?

How Much Has Traded?

Looking at SONIA swaps traded in 2021, we’ve seen the following notional amounts trade in negative territory per tenor:


  • £673bn of notional in SONIA OIS has now traded at negative rates! This is over ten times the amount we reported on when this first became a possibility in April/May last year!
  • 373 trades transacted in negative territory in total. Remember that many of these have capped notional amounts, meaning the total notional traded in negative territory has likely been much higher.
  • The shortest tenor was 1 month.
  • The longest tenor was 4 years.
  • The most active tenor was 3 months, with 67 trades at negative rates in 2021, with 1Y recording 50 negative trades.

Bear in mind that these are only the SONIA swaps reported to US SDRs. This is not the whole market. It would be an interesting exercise to consider the impact of Brexit and more SEF trading in GBP markets on these numbers, but that will be an assessment for another day!

When Are Rates Forecast to Go Negative?

Whilst the yield curve has steepened this month, it was the MPC meeting that caused the short-end to trade back into positive territory.

Looking at what has traded, this is probably best illustrated by the 1Y1Y forward. There appears to be quite a lot of repositioning occurring around the precise shape of the SONIA curve. 1Y1Y tends to look through this specificity somewhat:


  • The 1Y1Y forward in SONIA was firmly in negative territory, all the way until the 4th Feb MPC meeting.
  • Whilst the door was held ajar at that meeting for negative rates, it was clearly not what the market was expecting.
  • 1Y1Y therefore sharply corrected into positive territory.
  • It has traded frequently this year, with 86 trades reported.
  • The handful of trades that we have seen since the 4th Feb in negative territory are likely to be unwinds/novations rather than true price-forming transactions.
  • The overall trend has therefore been towards higher rates, with 1Y1Y now expecting SONIA to be pretty much unchanged at 5bp in a year from now.
  • So whilst the short-end of the curve has steepened, it has realistically gone from inverted to flat.

What Else Has Been Active?

Trumping MPC-dated activity this year, the IMM dates have been super active. We find over 70 trades transacted for the June 21 IMM. Maybe that is a direct result of market positioning?


  • 71 trades covering nearly £100bn in notional (plus the amounts above the capped thresholds).
  • It was trading in negative territory before the latest MPC meeting, and then sharply corrected. Let’s assume the low print of -10 bp was an unwind/bad data after that point!
  • We are now back at the flat print of 5 basis points, again similar to the 1Y1Y price action.

In Summary

Market expectations for negative rates in GBP have cooled significantly since the last MPC. Coupled with a global sell-off in bond markets, and with 1Y1Y SONIA already back in positive territory, it looks like negative rates are not on the agenda for UK market participants right now.

Our SONIA MPC tool certainly shows that there are now very slim chances of a cut in 2021:

All data for this blog was taken from SDRView Professional, our intraday tool for analysing swaps transparency data.

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