UK Bonds Issue?

trajan said:
"Almost fully hedged" pension funds ?
Till now I'd thought hedge funds were only a way of laying off risks from conventional market trading - side-betting on periodic collapses in all shares, etc.
But it seems they are the wideboys of the financial markets: short-selling, arbitrage, etc.
Boys, oh boys.
The UK bond market brought to crisis through aggressive trading by fund managers for the nation's pensioners'.
And for themselves, of course.
o_O
Click to expand...
Sorry Trajan…..I should have explained a bit more. “Hedged” has nothing to do with hedge funds. It’s a technical term which actually means the opposite to taking risk….as it relates to removing risk in these DB funds…..by ensuring that movements in long term interest rates dont negatively or positively impact on the funding position (or solvency) of the plans. So it’s a good thing for plan members
 
But:
1. It seems from online browsing that many pension funds **do** invest in hedge funds, as well as conventional bond, share and unit trusts.
2. The hedging process you allude to must come at the cost of reducing more traditional ways of securing a secure pension income, e.g. moving investment from shares and UTs to government bonds as the beneficiary approaches retirement age and loses the time to re-grow his/her nest-egg through market resurgence.

Everyone should take an autumn course in their local tech on pension fund dynamics.
 
Most pension funds not just in the UK but worldwide are loaded with very low yielding bonds from the last decade. Those bonds are now worth alot less due to rising interest rates and falling bond prices. Therefore all pension funds are suffering and will continue to suffer from falling bond values.
It's a mistake to think that this is just a UK only problem caused by Liz truss policies, it's not. Liz truss just crystallized the losses in pension funds and caused panic. The game is to allow people to slowly acclimatize to falling pension values and allow pension providers to offload the negative yielding stuff they bought before when everything was great for bonds in the never ending pantomime of falling and negative yielding bonds. It must be remembered that pension funds were obligated by government regulations to buy these government bonds therefore ensuring a reliable funding source for governments . This resulted in a feedback loop causing interest rates to fall alot further than they really should have. The real world has come back again with a bang and high inflation is here for a long time to come
 
Last edited:
Most pension funds not just in the UK but worldwide are loaded with very low yielding bonds from the last decade. Those bonds are now worth a lot less due to rising interest rates and falling bond prices. Therefore all pension funds are suffering and will continue to suffer from falling bond values.

Doesn't the nominal redemption value remains the same and the annual coupon likewise ?
Yet I can see how a fund manager can't sell these now and move money to better stuff.

It must be remembered that pension funds were obligated by government regulations to buy these government bonds therefore ensuring a reliable funding source for governments . . .

Is that obligation still extant in Ireland, UK and EU - I mean as a legally binding obligation (e.g. a condition of a fund licence from the local regulator), not as a moral one ?
 
"Which brings us to my second point. Recent turmoil in the UK draws attention to the fragility of markets for government debt around the world when they are not, one way or another, being manipulated by governments and central banks. Putting it bluntly, the world in the 15 years since the financial crisis is a world in which the authorities have artificially suppressed the yields on their debt. This is a big reason why bond yields haven’t risen anything like as much as inflation."

An extract from article from bloomberg explaining what is happening and that the problems are not confined to the UK. The main point is that interest rates have artificially been repressed by central banks globally. Therefore when central banks or governments do something not in support of this the bond markets panic. Its not just a UK issue
 
Yesterday we had the grim news that the UK is about to have its worst recession in years and treasury raised interest rates again by a record amount.
Yet the markets loved it and the stock markets rallied !!
What a strange world we are now living in where bad news is actually good news.
It appears that inflation is now the big issue and any news that is taking demand out of the market and thereby reducing inflation is taken as good news.
This is certainly different to the 1970s , but it's not a UK phenomenon, its global.
Too much money was printed during Covid and supply of goods is now the restriction , not money or demand
 
joe sod said:
This is certainly different to the 1970s , but it's not a UK phenomenon, its global.
Click to expand...
Yea, in the 1970's global debt was around 100% of global GDP. Now global debt is 350% of global GDP.
joe sod said:
Too much money was printed during Covid and supply of goods is now the restriction , not money or demand
Click to expand...
We've been artificially depressing the cost of debt for over a decade, we've been kicking the can down the road. We're running out of road.
 
You must log in or register to reply here.
Back
Top