Are pensions now at risk?

M

Mexboroseasider

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www.reuters.com

Bank of England to buy 65 billion pounds of UK bonds to stem rout

The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.
www.reuters.com www.reuters.com

After warning of “a material risk to the U.K. financial stability” the Bank of England have stepped in “to stem a market rout”, pledging to buy 65 billion pounds (£5b per day for the next 13 days) of gilts “after the government tax cuts triggered the biggest sell off in decades” (Reuters).

The threat is to pension schemes (so insurance companies) which operate LDIs (liability driven investment funds) who are running out of cash because of the market falls in the last few days and are at risk of collapsing. The 65bn spend is designed to give them a breathing space to get out of the derivatives.

It sounds like 2008 all over again, but this time involving insurance companies rather than banks. And the other difference obviously is that this crisis hasn’t been caused by junk bonds in the US. It began last Friday after the so called “mini budget”.
 
Mexboroseasider said:
www.reuters.com

Bank of England to buy 65 billion pounds of UK bonds to stem rout

The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.
www.reuters.com www.reuters.com

After warning of “a material risk to the U.K. financial stability” the Bank of England have stepped in “to stem a market rout”, pledging to buy 65 billion pounds (£5b per day for the next 13 days) of gilts “after the government tax cuts triggered the biggest sell off in decades” (Reuters).

The threat is to pension schemes (so insurance companies) which operate LDIs (liability driven investment funds) who are running out of cash because of the market falls in the last few days and are at risk of collapsing. The 65bn spend is designed to give them a breathing space to get out of the derivatives.

It sounds like 2008 all over again, but this time involving insurance companies rather than banks. And the other difference obviously is that this crisis hasn’t been caused by junk bonds in the US. It began last Friday after the so called “mini budget”.
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Just listening to Mark Carney on Today, according to him;

Defined benefit pension schemes did not have enough cash to meet short term commitments (cash they have to pay immediately), I think because the value of the bonds they held (to sell to meet the commitments) had dropped so low so quickly. So the BoE stepped in to stabilise the market and buy up bonds to drive the price up, it worked to a certain extent. Longer term pension fund commitments not at risk.

BofE steps into bail the government out, it's crazy.
If Kwarteng had allowed the OBR to assess his budget the reaction probably wouldn't have been anything like as bad. It's the unknown quantity of unfunded tax cuts and their impact on future government borrowing that is driving the market mania. If this was a known quantity the market can factor it in without a stampede. Pure stupidity and arrogance.
 
ElBurroSinNombre said:
Just listening to Mark Carney on Today, according to him;

Defined benefit pension schemes did not have enough cash to meet short term commitments (cash they have to pay immediately), I think because the value of the bonds they held (to sell to meet the commitments) had dropped so low so quickly. So the BoE stepped in to stabilise the market and buy up bonds to drive the price up, it worked to a certain extent. Longer term pension fund commitments not at risk.

BofE steps into bail the government out, it's crazy.
If Kwarteng had allowed the OBR to assess his budget the reaction probably wouldn't have been anything like as bad. It's the unknown quantity of unfunded tax cuts and their impact on future government borrowing that is driving the market mania. If this was a known quantity the market can factor it in without a stampede. Pure stupidity and arrogance.
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The OBR are not due to issue their report until late November and bringing it forward will not help the markets significantly, to coin the phrase 'the horse has bolted' is an understatement. KKs comments last Sunday on the politics shows regarding more tax cuts to come were his Edwina Curry and Gerard Ratner moments!
 
TangerineBayern said:
The OBR are not due to issue their report until late November and bringing it forward will not help the markets significantly, to coin the phrase 'the horse has bolted' is an understatement. KKs comments last Sunday on the politics shows regarding more tax cuts to come were his Edwina Curry and Gerard Ratner moments!
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Yes it's too late. But the fundamental mistake, if you insist on making the tax cuts, was not to let the OBR assess and publish their impact on borrowing. At least then the future damage is a known entity and can be factored into market prices in a sober way. It's exactly what the OBR is for and if the OBR thinks the tax cuts are unsustainable then you shouldn't make them. Evading scrutiny sends a really bad signal to the markets.

Market sentiment is partly about credibility and therefore Kwartang will have to go to restore some of that, he is on borrowed time.
 
It was the Bank’s comment “a material risk to U.K. financial stability” that struck me. An admission that, as with banks in 2008, insurance companies were at risk of collapsing, taking people’s pensions with them.

This £65 billion is being spent over the next 13 days and is designed to give the insurance companies a breathing space to reduce their exposure. Let’s hope they all manage to do that because if they don’t I can only see two options. Even more massive taxpayer support for insurance companies or alternatively pension funds running out of cash and collapsing - in which case wave goodbye to your private pension. Both the retired and those coming up to retirement.
 
An economist on Peston last night said the B o E’s intervention has solved this problem for now, but they will apparently have to return to it and sort it out at some point soon to stop it happening again.
I don’t know if this just means changing regulations, or bail outs of some kind, or another type of solution, he didn’t specify what was needed.
 
Can anyone who works in the sector explain why BoE didn't raise rates by 0.75% as was expected last week?
 
If Charles Ponzi was alive he would be on here to explain it all. Unfortunately he can’t but just google “ponzi”and hey presto!
 
rockontommy said:
Can anyone who works in the sector explain why BoE didn't raise rates by 0.75% as was expected last week?
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The MPC voted on it. Some wanted 0.75% (and I think one wanted 0.25%) but the majority opted for 0.5%.

There’s a lot of speculation that there’ll be another increase soon and we’re probably looking at 5 to 6% in the next few months.
 
The BoE has announced it is buying gilts for two weeks with £5 billion a day. Basically that gives a green light to all these gilt traders and hedge fund managers to carry on shorting the market for another two weeks, in the knowledge they will have a guaranteed profit from BoE funds. It’s just another forced public handout to the bankers.
 
Mexboroseasider said:
The MPC voted on it. Some wanted 0.75% (and I think one wanted 0.25%) but the majority opted for 0.5%.

There’s a lot of speculation that there’ll be another increase soon and we’re probably looking at 5 to 6% in the next few months.
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Cheers. Seems bizarre they didn't do the full three quarters and could've gone even further. It's only going one way, everywhere struggling to keep pace with the Fed.
 
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