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BOE: FPC recommends baseline resilience for LDI funds

UK
MNI (London)

The BOE FPC has told the UK pension regulator than LDI funds should have provisions to withstand severe but plausible stresses in the Gilt market and changes should take place as soon as possible.

  • The BOE recommended LDI funds should be able to meet margin and collateral calls without engaging in asset sales that could trigger a feedback loop, adding to market stress.
  • Pension funds may need to improve operational processes to provide collateral to their LDI funds.
  • LDI funds must assess all aspects of their exposures.

The FPC judged that the size of yield shock to which LDI funds should be resilient was 250 bps -- which compares to a 5-day 30-year yield move of around 160 bps in the September 2022 market slump. The 250bps would be 80bps of baseline resilience and 170bps of systemic resilience, the FPC said. 

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