UK central bank doubles daily limit on its bond-buying programme, and launches a new facility to ease pension funds’ liquidity pressures
Izabella Kaminska of The Blind Spot suspects the Bank of England is trying to head-off a shortage of collateral (assets that can be swapped for cash), with its new facility to help banks provide liquidity to pension funds.
The Bank launched its support for the pensions industry almost two weeks ago, as pensionsfunds invested in liability driven investment (LDI) were dragged close to a ‘doom loop’.
The funds had invested in complex derivatives, using long-dated government bonds as collateral – assets pledged as security to back up a financial contract.
In the market turmoil after the mini-budget, the value of UK government bonds fell sharply as investors began to lose faith in the credibility of the Truss administration to run a sustainable tax and spending policy. This meant a rise in yields – which move inversely to bond prices – in a reflection of the increased cost of government borrowing.
Continue reading…UK central bank doubles daily limit on its bond-buying programme, and launches a new facility to ease pension funds’ liquidity pressuresIzabella Kaminska of The Blind Spot suspects the Bank of England is trying to head-off a shortage of collateral (assets that can be swapped for cash), with its new facility to help banks provide liquidity to pension funds.The Bank launched its support for the pensions industry almost two weeks ago, as pensionsfunds invested in liability driven investment (LDI) were dragged close to a ‘doom loop’.The funds had invested in complex derivatives, using long-dated government bonds as collateral – assets pledged as security to back up a financial contract.In the market turmoil after the mini-budget, the value of UK government bonds fell sharply as investors began to lose faith in the credibility of the Truss administration to run a sustainable tax and spending policy. This meant a rise in yields – which move inversely to bond prices – in a reflection of the increased cost of government borrowing. Continue reading…