Who exactly has the BoE bailed out?
When we left the story on Wednesday the Bank of England had just swooped in with an emergency intervention in the long-dated gilt market to break the doom loop.
Its move is likely to have exceeded all expectations of success. A 100 basis-point rally! Doom loop broken! Wow!
But has the BoE bailed out the pension funds? Or did it bail out the pension fund managers? Some amazing FT reporting shed some light on the question, and the answer looks like it might be more complicated.
While some schemes continue to rush to raise cash to fund their derivatives positions, others have had the positions terminated by LDI managers, including BlackRock, leaving them exposed to further moves in rates and inflation.
Natalie Winterfrost, a professional trustee with Law Debenture, said: “There are definitely schemes that were forced out of the game. There are a material number of schemes that will have ended up unprotected, with many more fully unhedged. If gilt yields fall further then their funding positions will deteriorate.”
Simeon Willis, partner at XPS Pensions Group, said: “There could be many hundreds of schemes that have had their hedges reduced or removed. This means their funding positions are now much more vulnerable than they were a week ago.”
What is not specified is exactly when derivative positions were terminated by LDI managers such as BlackRock, or when schemes were “forced out of the game”.
This story originally appeared on: Financial Times - Author:Toby Nangle
