Nine days into the Bank of England’s 13-day operation to calm markets and create an escape chute for overleveraged pension funds, fresh storms should not be breaking out. But they are. Index-linked gilts have been added to the list of things the Bank is prepared to buy – on top of the conventional long-dated variety that have been the focus so far. This wasn’t just a technical tweak. The dreaded phrase “a material risk to financial stability” has returned to official communication.
What happened? First, the mini drama with pension funds’ liability-driven investment strategies. Despite Threadneedle Street’s loose claim that LDI funds have made “substantial progress” in deleveraging themselves, it rather looks as if some funds failed to heed the official warning to get their houses in order.
