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> the UK gilt crisis in December was related to pension funds holding long term gilts No, you got it wrong.. UK pension funds didn't have much gilts. UK pensi
by chewz 4y ago
> the UK gilt crisis in December was related to pension funds holding long term gilts
No, you got it wrong.. UK pension funds didn't have much gilts. UK pension funds had swaps on gilts and mostly assets equal to long term gilts (AAA rated). Like for example ownership of a parking lots in Germany, apartments in Norway - safe, steady cash flows. This is what chasing yields at zero interest rates does.
Penions funds needed a window of few days to make a fire sale of these assets to meet their margin calls. It takes about two weeks from some junior analyst from BlackRock visiting said parking lot in Germany, checking books to BlackRock depositing money at UK Pension fund bank account. So Bank of England opened unlimited discount window for UK Pension funds for about two weeks. And then it closed.
This is what happend.
- wcoenen 4y agoThanks for the correction, I indeed misremembered where exactly the margin calls came from. I guess the gist of the point I was trying to make still stands though. SVB was not the first fallout from rising yields on long duration assets. There is probably more improper hedging of duration risk out there.
- chewz 4y ago> I guess the gist of the point I was trying to make still stands though. Of course it does..