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MNI BRIEF: BOE To Temporarily Buy Gilts To Help Pension Funds

(MNI) London

The BOE's surprise return to gilt buying and postponement of sales gives institutional investor a month to sort themselves out

The Bank of England’s temporary return to bond-buying has given pension funds and other institutions a month to sort out their books after a savage fall in gilt prices raised concerns over potential insolvencies, but the BOE remains determined to tighten monetary policy and will push ahead with plans to sell gilts a month later than planned on Oct 31.

The BOE acted after margin calls on institutional investors with hedged fixed income liabilities prompted further gilt sales, leading to more margin calls in a downward spiral. According to an Investment Association estimate UK pension funds had GBP1.5 trillion hedged with Liability Driven Investment (LDI) trades as of 2020.

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The Bank of England’s temporary return to bond-buying has given pension funds and other institutions a month to sort out their books after a savage fall in gilt prices raised concerns over potential insolvencies, but the BOE remains determined to tighten monetary policy and will push ahead with plans to sell gilts a month later than planned on Oct 31.

The BOE acted after margin calls on institutional investors with hedged fixed income liabilities prompted further gilt sales, leading to more margin calls in a downward spiral. According to an Investment Association estimate UK pension funds had GBP1.5 trillion hedged with Liability Driven Investment (LDI) trades as of 2020.

Keep reading...Show less