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  • The UK’s two-year yield bond yield declined by six basis to record lows on Tuesday. 
  • Brexit tensions and dovish BOE expectations boost demand for UK government bonds. 

Renewed Brexit worries fueled haven demand for the UK gilts or government bonds on Tuesday, pushing the yield on short-term UK government bonds to record lows. 

The two-year yield fell by six basis points to a lifetime low of -0.151%, while longer duration yields slipped to levels last seen in mid- to late August.

Concerns of a no-deal Brexit have resurfaced this week with reports stating that the UK was planning a new law to override critical parts of the Brexit Withdrawal Agreement and the European Union’s.

Investors typically pour money into safe havens like government bonds during times of uncertainty. More importantly, Brexit tensions have boosted the dovish Bank of England expectations. 

According to Financial Times, “derivatives contracts linked to short-term interest rates show that investors are now fully pricing in a reduction in the UK interest rates to zero – from 0.1% currently – by February.” The markets are also pricing a growing chance of negative interest rates later next year.