As Kwarteng sat down after his statement in Parliament, the prices of those gilts plummeted, breaking records for daily increases in yields.
Higher yields are usually good news for pension schemes from a funding perspective. However, the unprecedented speed and scale of the sell-off was ruinous for many Defined Benefit schemes with "leveraged LDI" in place.
Such schemes had to post "collateral" to meet counterparty margin calls as yields rose. With markets experiencing extreme levels of stress after the "minibudget", schemes turned to the gilt market to sell assets as the only source of liquidity, in order to raise the cash to provide as collateral. Such selling meant yields rose further, sparking the need to post even more collateral, which required additional gilt sales.
As this "doom loop" perpetuated, the Bank of England had to intervene in the gilt market a year ago tomorrow acting as a circuit-breaker. It offered to buy £65 billion of gilts, pushing yields back down to "pre-mini-budget" levels.
この記事は Evening Standard の September 27, 2023 版に掲載されています。
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この記事は Evening Standard の September 27, 2023 版に掲載されています。
7 日間の Magzter GOLD 無料トライアルを開始して、何千もの厳選されたプレミアム ストーリー、9,000 以上の雑誌や新聞にアクセスしてください。
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