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The Bank of England has privately signalled that it may be willing to extend an emergency UK government bond buying programme beyond this week, the Financial Times reported on Wednesday.
The newspaper, citing people briefed on the talks, said some bankers have been told officials are closely watching pension funds and their managers.
Specifically, they are eyeing whether some liability-driven investment managers have amassed enough liquidity to meet margin calls. These types of investment managers assist pension funds in managing risk.
A margin call occurs when an investor's portfolio account falls below a required amount. In order to shore things up, they would typically need to deposit cash to get it back above the level required. A broker may also force the investor to sell assets.
One banker quoted by the FT said: ‘They told us they were watching the LDI managers closely to see whether they had managed to generate enough liquidity for their clients to cope with margin calls and would decide whether to extend the facility on Thursday or Friday.’
The FT reported the talks to place before BoE Governor Andrew Bailey spoke in Washington.
https://www.ft.com/content/87a5b7bf-6786-427f-89d6-96b736dcb814
The BoE on Tuesday had affirmed its emergency gilt buying will end on Friday. The move came despite bond market volatility that has put pensions and the UK's ‘financial stability’ at risk. The BoE last month announced plans to buy up long-dated gilts amid market turmoil following poorly received UK fiscal plans.
Governor Andrew Bailey in Washington said: ‘My message to the [pension] funds involved you've got three days left now. You have got to get this done. ’Part of the essence of a financial stability intervention is that it is clearly temporary.‘
The BoE last month announced plans to buy up long-dated gilts amid market turmoil following poorly received UK fiscal plans.
Eyes remained on the UK government bond market early Wednesday. The yield on the 30-year gilt stood at 4.86% shortly after 0800 BST, stretching from 4.79% around 1700 BST on Tuesday.
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