Daily trading turnover in long-dated UK government bonds is typically around £10-£12 billion. At the worst moment of the liability driven investment (LDI) debacle in late September, pooled funds managing assets of UK defined-benefit pension schemes were set to sell £50 billion in a single day: a vast fire-sale with no buyers.
Having already sold off by 160bp in three days, the biggest move in 200 years, UK government bonds changed hands at one point at 50% of face value. That’s a distressed price more typical of an emerging country heading into IMF negotiations on debt restructuring. Some LDI funds were close to zero asset value and insolvency.
This was the hottest moment so far in a rolling conflagration across developed market government bonds that has scorched investors badly this year. It burned out quickly. The Bank of England stepped in and promised to buy up to £65 billion. The country’s finance minister and prime minister were both replaced within a fortnight.
UK government bonds changed hands at one point at 50% of face value. That’s a distressed price more typical of an emerging country
But though a measure of order has returned to UK gilts,…
