The Bank of England has asked more than 50 City institutions to model the impact of a sharp movement in bond prices caused by a severe geopolitical shock as part of its first financial system-wide stress test.
The request comes after the September 2022 crisis in bond markets and sterling that followed Liz Truss’s mini-budget, when pension funds came under pressure and some were driven to near-collapse. A sharp shift in bond prices and the corresponding interest rates, or yields, laid bare major risks that certain kinds of liability-driven investing (LDI) posed to retirement savings.
