UK regulators overseeing the pensions sector are holding daily meetings with asset managers to avoid another crisis in the bond market once the Bank of England’s emergency intervention ends, the Financial Times reported.
Regulators are worried that once the BOE’s £65 billion ($72.6 billion) bond buying stops on October 14, a gilt selloff might resume. The Financial Conduct Authority declined to comment when contacted by Bloomberg News, while the UK’s Treasury did not respond to a request for comment.
“We are monitoring the situation in the financial markets closely to assess the impact on defined benefit pension scheme funding,” said a spokesperson for The Pensions Regulator in emailed comments to Bloomberg. “We again call on trustees of defined benefit schemes and their advisers to continue to review the resilience and liquidity of their investments, risk management and funding arrangements, and plan accordingly to protect the interest of scheme members.”
Earlier this week, the central bank stepped in to save the gilt market from collapse by pledging unlimited purchases of long-dated bonds, after it was warned that collateral calls could force investors to dump the debt. The UK market rout kicked off after Chancellor Kwasi Kwarteng presented a mini-budget that entailed the biggest package of borrowing-fueled tax cuts in half a century.
The talks between the UK watchdogs and investors fall under the Authorities Response Framework, designed to resolve threats to financial stability, according to the Financial Times. It said defined-benefit pension plans are still having to sell other assets to raise cash to meet margin calls, despite the BOE’s intervention.
The BOE’s chief economist Huw Pill, in comments reported in a separate story by the Times newspaper, said the emergency measure would not have implications for monetary policy as it was designed only to preserve financial stability. He reiterated that a cut in taxes was likely be met by a significant response from the Monetary Policy Committee at its next meeting in November.
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