UK debt management office (DMO), today sold £850 million worth of inflation-linked bonds at record negative rates as investors fear that the sharp drop in pound could lead to a spike in inflation even if it proves to be temporary. The 20-year bond was oversubscribed in the auction and the DMO received total bids worth of £1.37 billion. The bonds were sold at an average yield of -1.722 percent.

Though Bank of England (BoE) predicts that the inflation will not overshoot the 2 percent target until 2018 from current 0.5 percent, the demands for these linkers suggest that the market is pricing a spike before.

The yields have also plummeted for non-inflation linked bonds. UK 10-year and 30-year yields have dropped to record lows of 0.53 percent and 1.25 percent. Short-dated yields briefly dropped to negative yesterday.

The Bank of England (BoE) faced trouble on Tuesday in executing its asset purchases. The pension and insurance funds played hardball and chose not to part with gilts even at a higher price than the market. BoE fell short of its tar by £52 million.