Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Bank of England: Risk of another fire-sale in gilts significantly reduced

Bank of England: Risk of another fire-sale in gilts significantly reduced

The Bank of England on Tuesday said liability-driven investment funds were now better prepared to manage shocks like the one triggered by September's mini-budget, and the risk of another "fire sale" dynamic in gilts had been significantly reduced.
Pension funds were forced to offload billions of pounds of UK government bonds, or gilts, at distressed prices earlier this month, after an ill-fated package of tax cuts sent yields soaring, triggering margin calls on derivatives designed to protect the funds against movements in rates.

The Bank of England had to step in to buy bonds to stabilise the market.

"Taken as a whole, LDI funds are now significantly better prepared to manage shocks of this nature in the future," BoE Deputy Governor Jon Cunliffe said in a letter to parliament's Treasury Select Committee.

"As such, the risk of LDI fund behaviour triggering 'fire sale' dynamics in the gilt market and self-reinforcing falls in gilt prices has been significantly reduced."

LDI funds asked for much larger levels of collateral following the market shock to protect against sharp moves in yields, with the blessing of regulators, industry sources told Reuters. Sources estimate pension schemes needed to sell at least 300 billion pounds ($339.87 billion) in assets to meet those collateral calls.

Cunliffe said the BoE would continue to monitor market conditions and will work with regulators on the lessons to be learnt from recent stresses in the financial market, pointing specifically to a global push for reform in the regulation of non-banking financial institutions, which include pension funds.

The regulatory oversight of Britain's 1.6 trillion pound LDI sector is under scrutiny following the gilt market crisis.

Gilts have remained volatile in recent days following a government U-turn on its fiscal plans, and pension funds are continuing to adjust their hedging positions, industry sources say.

"It’s relatively calm but markets are fragile and nervous," said Ed Wilson, a partner at pensions consultants Isio.

"It wouldn’t take much to see dramatic moves in yields again."

($1 = 0.8827 pounds)
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
×