In theory negative interest rates would make it less appealing to keep cash in the bank and make it more appealing to borrow money with rates being pushed loan rates to rock-bottom lows.
The Debt Management Office (DMO) confirmed the United Kingdom sold £3.8 billion of three-year gilts at a yield of minus 0.003% - the first time ever below zero for a longer term United Kingdom government bond.
Andrew Bailey, the Bank's Governor, has so far rejected negative interest rates as a policy though pressure is mounting as several colleagues including chief economist Andy Haldane have raised the idea. "But while this may not be made explicit, the impact of the Bank of England's rate cuts and increased asset purchases is absolutely clear from this morning's groundbreaking gilt auction", said Hugh Gimber at JP Morgan Asset Management.
Negative interest rates potentially challenge some banks' and building societies' solvency as they find it hard or impossible to apply them to customers' savings accounts.
United Kingdom 2-year yields fell to an all-time low of -0.051% in the latest trade.
Investors have been piling into gilts amid the Covid-19 pandemic, with United Kingdom government bonds seen as a safe haven due to Britain's strong creditworthiness, especially in times of economic turmoil.
It comes as investors have been pricing in the possibility of negative United Kingdom interest rates - with bond prices having rallied recently as a number of Bank of England policymakers have said they might consider cutting rates below zero.
Others would be looking to hedge against the risk of the BoE cutting rates below zero, he added. They first fell into negative territory in March but were trading with a positive yield as recently as Tuesday.
"This may be the last thing the sponsor needs, given the current economic situation and the potential difficulty in affording those extra payments", pension fund trustee Vassos Vassou of Dalriada Trustees said.