![]() Any pension fund which sells now is dammed forever. The Bank of England gave the pension funds until today, Friday 14th October 2022, to make up their minds whether to sell gilts to the BoE instead of risking a fire sale which could turn into a death spiral. They nipped it in the bud, before it got too out-of-hand. So the Bank of England stepped in and started buying gilts to stabilise the market. They effectively pivoted, turning from QT to QE.Īt least they stopped the fall in gilt prices. They could pick up a little extra yield whilst staying invested in a nice safe bond backed by a G7 nation. Long maturities seemed like a good idea for pension funds. You could have easily paid £200 for something which is now worth only £50. If you bought it two years ago it's down 75%. The 50 year bond is down more than 60% this year. The trouble with selling gilts into an empty market is that you drive down the bid price, which in turn triggers more margin calls. They had to sell gilts to raise the cash to meet the margin calls. They were then forced to start selling the most liquid assets they owned - gilts. The margin calls exhausted pension fund cash. Now they were getting margin calls as bond prices fell. Pension funds had taken on a kind of leverage to boost returns. ![]() The UK's financial stability was at risk. Confidence in the UK economy was evaporating. Bonds prices were falling, creating margin calls and fire sales. Two weeks ago the UK came close to a financial meltdown. It's either tighten, and risk systemic collapse, or ease and destroy the currency. Central Banks are between the devil and the deep blue sea. The point of no return has already been passed. That can't continue before something gives. Government debt has reached unsustainable levels. The financial world is in a precarious state. High Levels of Government Debt will cause a Financial Meltdown But first let's take a look at the global backdrop to the coming currency reset.
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