Jakarta, CNBC Indonesia – The position of the pension fund industry in the UK is in jeopardy, they need hundreds of billions of US dollars to patch the position margin call on derivative products on the market. If not, they are in danger of not being able to pay the pensioners.
Reuters estimates, for now they need at least £320 billion ($355 billion) or around Rp5,449 trillion in Garuda currency at an exchange rate of Rp15,350/US$.
Now pension funds are racing to sell their assets, be it UK government bonds or gilts, inflation bonds until corporate bonds in all markets, from the UK, Europe to the US.
They moved quickly especially after the British central bank (Bank of England / BoE) announced it would stop buying gilts in the market on Friday (10/13/2022).
This sell-off has been going on since the end of last month, after investors were disappointed with the UK government’s stimulus plan.
Cash funds are needed to patch new and old hedged positions on an investment scheme called liability-driven investment (LDI). The amount of cash needed is getting bigger, as a reserve given the high volatility in the US bond market.
The yield or yield on the UK government’s 30-year bond or gilts rose to as low as 4.798%, up nearly 100 basis points since the beginning of the month.
The yield on 10-year gilts surged to a level of 4.441%, close to the level of the 2008 global financial crisis. The direction of yield movement is opposite to that of prices.
CNBC INDONESIA RESEARCH TEAM
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