UK pension schemes are dumping stocks and bonds to raise cash and seeking bailouts from their corporate backers as the crisis in the industry continues to rage a week after the government’s “mini” Budget.
Most of the UK’s 5,200 defined benefit schemes use derivatives to hedge against moves in interest rates and inflation, which require cash collateral to be added depending on market moves.
The sharp fall in the price of 30-year government bonds, triggered by last week’s tax cut announcement, led to unprecedented margin calls, or demands for more cash.
To raise the funds, pension funds sold assets — including government bonds, or gilts — causing prices to fall further. The Bank of England stepped in to buy gilts on Wednesday, stabilising the market, but the pension funds are continuing to sell assets to meet cash calls.
“There’s a lot of pain out there, a lot of forced selling,” said Ariel Bezalel, fund manager at Jupiter. “People who are getting margin called are having to sell what they can rather than what they would like to.”
He said the BoE’s intervention had helped to bring down yields in longer-dated bonds but other assets remained “under pressure” because pension schemes were “having to liquidate paper”. He added: “We’re seeing really quality investment grade paper coming up for grabs . . . names like Heathrow, John Lewis, Gatwick, BT — solid fundamentals — to raise cash.”
High-grade corporate bonds denominated in sterling have come under severe selling pressure, with yields soaring 1 percentage point since the UK fiscal package was announced to 6.58 per cent, according to an Ice Data Services index. Yields have jumped 1.63 percentage points this month in the biggest rise on record.
Ross Mitchinson, co-chief executive of UK broker Numis, said: “There has been the forced selling of everything — equities as well as bonds.”
The UK’s domestically focused FTSE 250 has fallen more than 5 per cent this week.
Simeon Willis, partner at XPS Pensions Group, said: “Pension schemes are selling equities and corporate bonds and using those assets to top up their hedges.”
Some managers of the so-called liability-driven investing strategies are demanding more cash to fund the same derivatives position in a dash for safety. The largest managers include Legal and General Investment Management, BlackRock and Insight Investment.
Sleepless nights for the codgers of Middle England
So the bank of englands flying in through the window to stop the gunman might have been a couple seconds too late?
So what’s at most risk at the moment, my future state pension or my future private pension, or both?
On a scale of 1-fucked, how is the USS pension doing?
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UK pension schemes are dumping stocks and bonds to raise cash and seeking bailouts from their corporate backers as the crisis in the industry continues to rage a week after the government’s “mini” Budget.
Most of the UK’s 5,200 defined benefit schemes use derivatives to hedge against moves in interest rates and inflation, which require cash collateral to be added depending on market moves.
The sharp fall in the price of 30-year government bonds, triggered by last week’s tax cut announcement, led to unprecedented margin calls, or demands for more cash.
To raise the funds, pension funds sold assets — including government bonds, or gilts — causing prices to fall further. The Bank of England stepped in to buy gilts on Wednesday, stabilising the market, but the pension funds are continuing to sell assets to meet cash calls.
“There’s a lot of pain out there, a lot of forced selling,” said Ariel Bezalel, fund manager at Jupiter. “People who are getting margin called are having to sell what they can rather than what they would like to.”
He said the BoE’s intervention had helped to bring down yields in longer-dated bonds but other assets remained “under pressure” because pension schemes were “having to liquidate paper”. He added: “We’re seeing really quality investment grade paper coming up for grabs . . . names like Heathrow, John Lewis, Gatwick, BT — solid fundamentals — to raise cash.”
High-grade corporate bonds denominated in sterling have come under severe selling pressure, with yields soaring 1 percentage point since the UK fiscal package was announced to 6.58 per cent, according to an Ice Data Services index. Yields have jumped 1.63 percentage points this month in the biggest rise on record.
Ross Mitchinson, co-chief executive of UK broker Numis, said: “There has been the forced selling of everything — equities as well as bonds.”
The UK’s domestically focused FTSE 250 has fallen more than 5 per cent this week.
Simeon Willis, partner at XPS Pensions Group, said: “Pension schemes are selling equities and corporate bonds and using those assets to top up their hedges.”
Some managers of the so-called liability-driven investing strategies are demanding more cash to fund the same derivatives position in a dash for safety. The largest managers include Legal and General Investment Management, BlackRock and Insight Investment.
Sleepless nights for the codgers of Middle England
So the bank of englands flying in through the window to stop the gunman might have been a couple seconds too late?
So what’s at most risk at the moment, my future state pension or my future private pension, or both?
On a scale of 1-fucked, how is the USS pension doing?