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☆ Mark-to-market losses from LDI derivatives could total $167 bln- JPMorgan analysts
▼ + stars: | 2022-10-13 | by ( ) www.reuters.com time to read: +1 min

LONDON, Oct 13 (Reuters) - Mark-to-market losses on derivative positions linked to liability-driven investment (LDI) - the strategy at the heart of Britain's pension fund crisis - could total between 125 and 150 billion pounds ($167.40 billion) since early August, JPMorgan analysts said on Thursday. Pension funds have been scrambling to sell assets to raise cash to fund their LDI-related derivatives positions since Britain's "mini-budget" on Sept. 23 caused UK government bond yields to surge. The JPMorgan analysts said despite worries about the fallout from those asset sales, there was "little sign of significant funding stress" from the recent widening of dollar cross-currency basis swaps. ($1 = 0.8961 pounds)Register now for FREE unlimited access to Reuters.com RegisterReporting by Tommy Reggiori Wilkes; editing by Carolyn CohnOur Standards: The Thomson Reuters Trust Principles.

☆ Explainer: How are life insurers coping in LDI storm?
▼ + stars: | 2022-10-13 | by ( Carolyn Cohn | ) www.reuters.com time to read: +3 min

LONDON, Oct 13 (Reuters) - The focus of a gilt market storm has been around pension schemes' use of liability-driven investments (LDI), many of which are highly leveraged. Life insurers also use LDI strategies in their provision of annuities, which pay a fixed income for life. HOW HAVE LIFE INSURERS PERFORMED? Life insurers were more likely to have hedged their positions with physical financial instruments, rather than with derivatives, analysts say. WHAT DOES THE FUTURE HOLD FOR LIFE INSURERS?

☆ BoE intervention saved pension schemes from needing employer cash-regulator
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +3 min

The surge led to demands on pension schemes to stump up more collateral on liability-driven investments (LDI) - typically derivatives used to hedge government bonds. The Bank of England (BoE) stepped in to buy government bonds, but its programme is due to end on Friday, pressuring pension schemes to sell billions in pounds of assets to meet their collateral calls before that support is withdrawn. But some schemes may have lost money after the surge in yields forced them out of their LDI positions. "The exact outcomes for pension schemes is mixed. UK pension fund trustees should step up engagement with investment managers to quantify funding gaps and risks prior to the end of the BoE's bond-buying scheme, the regulator said earlier on Wednesday in guidance for trustees.

While estimates of how much pension funds need to sell vary they are in the hundreds of billions of pounds, and it is not known how much funds have already raised in cash. Tuesday's BoE intervention was targeted at buying index-linked bonds, a far smaller market than gilts, dominated by pension funds and which suffered another significant selloff this week. He estimates pension funds could sell assets totalling around 300 billion pounds as they adjust hedging positions, although it is not clear how much they may have sold already. He estimated 100 billion pounds could come from gilts and the rest from assets such as global credit, global equities and asset-backed securities. "The bottom line is a lot of schemes need to rebalance their portfolios," he said.

☆ BoE signals to lenders it is prepared to extend bond purchases - FT
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +1 min

The report comes after the British central bank's governor Andrew Bailey said on Tuesday that he had no intention of extending purchases of bonds beyond Friday when they are due to stop. Sterling bounced 0.4% to $1.1008 after the report.FRXRegister now for FREE unlimited access to Reuters.com RegisterBy buying bonds, the BoE is seeking to reverse what it sees as "dysfunction" in the bond market. Specifically, the central bank was seeking to address problems facing pension funds. The BoE on Tuesday expanded its programme of daily bond purchases to include inflation-linked debt, citing a "material risk" to British financial stability and "the prospect of self-reinforcing 'fire sale' dynamics". Register now for FREE unlimited access to Reuters.com RegisterReporting by Shubham Kalia in Bengaluru; Editing by Kim CoghillOur Standards: The Thomson Reuters Trust Principles.

☆ UK pensions sector must move quickly as BoE deadline looms - regulator
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 12 (Reuters) - UK pension fund trustees should step up engagement with investment managers to quantify funding gaps and risks prior to the end of the Bank of England's (BoE) emergency bond-buying scheme on Oct. 14, The Pensions Regulator said on Wednesday. The regulator has also encouraged schemes to consider appointing professional trustees and to discuss whether employers are able to provide cash to help plug any liquidity shortfall, it said in a guidance statement for pension fund trustees and advisers. The BoE has had to step in to stabilise markets. In a sign of the spillover of the stress to other asset classes, Columbia Threadneedle said late on Tuesday it had suspended a property fund aimed at retail investors. read more($1 = 0.9118 pounds)Register now for FREE unlimited access to Reuters.com RegisterReporting by Sinead Cruise and Carolyn Cohn Editing by Mark PotterOur Standards: The Thomson Reuters Trust Principles.

REUTERS/Brendan McDermid/File PhotoOct 12 (Reuters) - Signs of stress are growing in the global financial system, sparking worries over everything from contagion between markets to ruptures in financial products. This week alone, a gloomy report from the International Monetary Fund flagged risks of “disorderly asset repricings” and “financial market contagions” while JPMorgan chief Jamie Dimon predicted a looming recession. Global financial conditions, which reflect the availability of funding, touched their tightest since 2009 in late September, an index compiled by Goldman Sachs showed, lifted by surging interest rates, falling equities and a soaring dollar. “There are dollar funding shortages.”The IMF's Global Financial Stability Report, released Tuesday, also highlighted specific risks in open-end investment funds and the leveraged loan market. U.S. Treasury Secretary Janet Yellen on Tuesday said she has not seen signs of financial instability in U.S. financial markets despite high volatility.

☆ Factbox: From property to bonds, four financial flashpoints for the euro zone
▼ + stars: | 2022-10-12 | by ( Francesco Canepa | ) www.reuters.com time to read: +6 min

Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/IllustrationFRANKFURT, Oct 12 (Reuters) - While a financial storm gathers nearby, the euro zone has so far been comparatively unscathed. Register now for FREE unlimited access to Reuters.com RegisterHere's a look at four possible flashpoints that are keeping investors and regulators awake at night: property prices, bank loans, government bonds and "shadow banks". REAL TROUBLEThe euro zone enjoyed a real-estate boom until last year, with home prices rising by some 40% since 2015 and commercial real estate prices up 26%. gross debt-to-income ratio for selected euro zone countriesSPREAD TOO THINThe rise in interest rates has raised fresh questions about one of the world's most indebted borrowers: Italy.

☆ Britain's bond market turmoil
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +3 min

The country's financial markets have been in turmoil since finance minister Kwasi Kwarteng last month unveiled tax cuts with no details of how they would be paid for. * The Bank of England has been forced into emergency bond-buying to stem a sharp sell-off in Britain's 2.1 trillion pound ($2.3 trillion) government bond market that threatens to wreak havoc in the pension industry and increase recession risks. * The BoE interventions have highlighted a growing segment of Britain's pensions sector - liability-driven investment. MAJOR PLAYERS* BoE governor Bailey said on Tuesday on the sidelines of an IMF meeting in Washington that BoE support for the pension funds would end as planned on Friday. MARKET REACTION* The 20- and 30-year UK government bond yields both hit their highest since 2002 at 5.195% and 5.1% respectively, passing above 5% for the first time since the BoE began buying bonds on Sept. 28 to calm the turmoil.

☆ Britain warns of tighter rules for crisis-hit LDI funds
▼ + stars: | 2022-10-12 | by ( Huw Jones | ) www.reuters.com time to read: +3 min

The FCA regulates asset managers who sell and run LDI strategies, while TPR regulates pension funds. The BoE oversees banks, some of which are part of the LDI chain. LDI is a popular product sold by asset managers to pension funds, using derivatives to help them match assets with liabilities so there is no risk of a shortfall in money to pay pensioners. Pension funds struggled to come up with higher collateral calls to back the derivatives used in the strategy, forcing the BoE to intervene in the gilts market. Given many LDI funds are listed in Dublin or Luxembourg, the European Union would also need to make reforms to implement such requirements.

Earlier in the day the British central bank said it would continue to buy bonds this week. The pan-European STOXX 600 index (.STOXX) lost 0.56% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 0.97%. Emerging market stocks (.MSCIEF) lost 2.28% after hitting an April 2020 low and were set for a near-30% tumble year-to-date, their biggest decline since 2008. read moreGILT RESPITEBonds globally have been sideswiped by the rout in UK government bonds, known as gilts, pushing yields on U.S. Treasuries up sharply. Bond market trading was volatile with longer-dated U.S. Treasury yields hitting multi-year highs.

We think the rebalancing must be done," Bailey said at an event organised by the Institute of International Finance. "My message to the funds involved and all the firms involved managing those funds: You've got three days left now. Bailey was keen to distinguish between the temporary, financial stability nature of the latest intervention and previous quantitative easing stimulus. HEAVY LOSSESInflation-linked gilts, typically held by pension funds and known in the market as linkers, suffered a massive sell-off on Monday as the end to the BoE's programme on Friday approached. Simeon Willis, chief investment officer of pension consultants XPS, said he had seen pension funds selling "across the board" to find liquidity.

☆ S&P 500, Nasdaq end lower; BoE comments add to market jitters late
▼ + stars: | 2022-10-11 | by ( Caroline Valetkevitch | ) www.reuters.com time to read: +3 min

Trading was volatile, with investors cautious ahead of key U.S. inflation data and the start of third-quarter earnings later this week. The S&P banks index (.SPXBK) was down 2.6% ahead of quarterly results from some major banks later this week. The reports are expected to kick off the third quarter reporting period for S&P 500 companies. read moreDeclining issues outnumbered advancing ones on the NYSE by a 1.50-to-1 ratio; on Nasdaq, a 1.51-to-1 ratio favored decliners. The S&P 500 posted one new 52-week high and 104 new lows; the Nasdaq Composite recorded 33 new highs and 590 new lows.

☆ Fire-fighting Bank of England forced to buy inflation-linked bonds
▼ + stars: | 2022-10-11 | by ( Andy Bruce | ) www.reuters.com time to read: +3 min

Citing a "material risk" to financial stability arising from a rout in British government bonds - known as gilts - the BoE said it would buy up to 5 billion pounds ($5.51 billion) of index-linked debt per day, starting Tuesday. Rather than increase the existing commitment to buy up to 10 billion pounds of gilts each day, as announced on Monday, the purchases will run alongside existing purchases of long-dated conventional bonds, now worth up to 5 billion pounds. British inflation-linked gilts - known as linkers - suffered a massive sell-off on Monday, despite the BoE doubling the maximum size of its buy-backs of conventional long-dated gilts. "Dysfunction in this market, and the prospect of self-reinforcing 'fire sale' dynamics pose a material risk to UK financial stability." To halt freefalling prices, the BoE was forced to pledge to buy as much as 65 billion pounds ($73.63 billion) of long-dated government bonds, known as gilts.

☆ This ETF's focus on total return has made it a rare winner over the past year. Here's how it works
▼ + stars: | 2022-10-11 | by ( Jesse Pound | ) www.cnbc.com time to read: +2 min

The fund has a portfolio of individual stocks that is offset by put options on the S & P 500. It has delivered a total return of more than 3% over the past year, according to FactSet, even as equity markets have fallen into a bear market. To be sure, the fund's focus on total return and downside protection will likely lead to underperformance of the S & P 500 during up markets. In these periods, the fund has underperformed the S & P 500 going back to its inception in 2017. Gamache said that some clients view the fund as a piece of their equity portfolio while others see it in part as fixed income proxy, given its total return and downside protection focus.

Compounding the pain, providers of so-called liability-driven investment strategies (LDI) are demanding more cash to support new and older hedging positions. The cash buffers now required are about three times bigger than previously requested, according to four consultants advising pension schemes, as market players seek bigger cushions against more volatile moves in bonds. Estimates of how much pension funds need to sell range but are in the hundreds of billions of pounds, although it is not known how much in assets schemes have sold already. "We are definitely not there," he said, referring to whether funds were close to raising the required cash by selling assets. He estimated 100 billion pounds could come from gilts and the rest from assets such as global credit, global equities and asset-backed securities.

Register now for FREE unlimited access to Reuters.com RegisterMajor U.S. banks are set to kick off the third-quarter earnings season in earnest on Friday, amid anxiety about the impact of inflationary pressures, rising interest rates and geopolitical uncertainties on their profit. Chicago Fed President Charles Evans on Monday joined the chorus of other central bankers backing the Fed's attempt to lower inflation without a sharp rise in unemployment even as it continues raising interest rates. read more read moreAt 9:53 a.m. Tech behemoths Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) fell 0.9% and 1.5%, respectively, weighing down the S&P 500 technology sector index (.SPLRCT). The S&P index recorded one new 52-week high and 22 new lows, while the Nasdaq recorded 33 new highs and 200 new lows.

☆ Bernanke bank-crisis Nobel requires markets sequel
▼ + stars: | 2022-10-10 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

LONDON, Oct 10 (Reuters Breakingviews) - Rarely has an academic put theory into practice like Ben Bernanke. Yet the resulting era of tight bank regulation and ultra-low interest rates helped build up risks in financial markets which are only slowly becoming apparent. Bernanke’s research, and that of fellow laureates Douglas Diamond and Philip Dybvig, put lenders at the heart of the economy. In 2021, they accounted for about half of total global financial assets, compared with two-fifths for banks. Years of loose monetary policy, under Bernanke and his successors, have pushed many of these market players to take on more risk.

☆ Kanye West just dropped a 30-minute video appearing to feature a heated conversation where he shows porn to Adidas executives and accuses them of stealing his ideas
▼ + stars: | 2022-10-10 | by ( Sarah Jackson | ) www.businessinsider.com time to read: +4 min

Ye, formerly known as Kanye West, released a video on YouTube appearing to show him in a heated conversation with Adidas executives about their Yeezy partnership. He seems to show them porn and says they've "done wrong" by him by stealing his ideas, he says. A 30-minute video called "Last Week" released Monday seemingly shows a conversation between West and Adidas employees in which he shows them a pornographic video and accuses the company of stealing his ideas. In part of the video, West is seen sitting with four men, whose faces are blurred, and he shows them porn on his phone. In September, West had said he planned to "go it alone" after his contracts with Adidas and Gap expire.

☆ Bank of England still trying to put out fire Liz Truss started
▼ + stars: | 2022-10-10 | by ( Julia Horowitz | ) edition.cnn.com time to read: +2 min

The central bank said it would accept a wider range of assets as collateral in exchange for cash. The yields on long-dated government bonds, which move opposite prices, fell sharply after the Bank of England announced its initial action in late September. The central bank has said that it was forced to act to prevent a “self-reinforcing spiral” after the market experienced historic selling in the wake of the budget plans revealed by Finance Minister Kwasi Kwarteng and Prime Minister Liz Truss. Pension funds — which have been particularly exposed to the tumult — have been forced to sell whatever assets they can to replenish depleted cash stocks. To date, the Bank of England has scooped up just £5 billion in debt when it could have purchased £40 billion, it said Monday.

☆ How a sleepy corner of the market nearly triggered a meltdown
▼ + stars: | 2022-10-08 | by ( Julia Horowitz | ) edition.cnn.com time to read: +8 min

London CNN Business —Pension funds are designed to be dull. The scale of the tumult put enormous pressure on many pension funds by upending an investing strategy that involves the use of derivatives to hedge their bets. “It started to feed itself,” said Ben Gold, head of investment at XPS Pensions Group, a UK pensions consultancy. Yields on longer-term bonds have dropped sharply, giving pension funds time to recoup — though they’ve recently started to rise again. Still, Kenneth is concerned that if the program ends next week as scheduled, the task won’t be complete given the complexity of many pension funds.

There were two main elements to the blowup in so-called Liability Driven Investment (LDI) strategies for British pension funds over the end of the third quarter. And yet it's private credit - ranging from direct corporate lending vehicles to leveraged loans - where arguably least is known. The rising rate environment alone has made some wonder how resilient private credit strategies given they don't have to mark to market regularly. To cope with illiquidity, the survey showed investors increasingly pairing private credit allocations with cash or more liquid core fixed income instruments. The boom in private credit assets has been spectacular - but booms don't last forever and shocks like the ones we've seen in recent weeks are at least a shot across the bow.

☆ Pension fund blowup faces brutal second act
▼ + stars: | 2022-10-06 | by ( Aimee Donnellan | ) www.reuters.com time to read: +5 min

The Bank of England announced a 65 billion pound gilt-buying scheme to stabilise markets and rescue pension funds. Bailey’s move may have been too late to stop some pension funds from having to close out their hedges, like interest rate swaps or futures. The rate at which retirement payments are discounted will also fall, pushing up the pension fund’s future liabilities, but without a corresponding asset gain. Meanwhile, investors like Goldman Sachs are hoovering up cut-price stakes in private equity vehicles, which LDI funds are selling. They also held 78 billion pounds and 317 billion pounds in property and equities respectively.

☆ Credit Suisse’s wayward debt is a bet for the bold
▼ + stars: | 2022-10-06 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 6 (Reuters Breakingviews) - Credit Suisse’s (CSGN.S) debt derivatives are still sending spooky signals, even though its equity is not. Yet its credit default swaps (CDS), contracts used to speculate on a company defaulting on its debt, are still bizarrely elevated, despite the absence of any bad news. Five-year swaps were trading at roughly 360 basis points on Thursday, compared with around 200 basis points in mid-September, according to Refinitiv data. Credit Suisse’s one-year CDSs, meanwhile, were quoted at around 600 basis points on Thursday morning, according to one trader. Investors willing to bet that Credit Suisse can survive would make handsome gains.

☆ Interest rate delusion may be biggest error of all
▼ + stars: | 2022-10-06 | by ( Edward Chancellor | ) www.reuters.com time to read: +7 min

The false idea exposed by the current bear market is that interest rates would remain low indefinitely. The belief that interest rates would remain at permanently low levels could prove the most costly error of all. The lowest-ever interest rates gave us the “Everything Bubble”. Now that interest rates are rising, everything is at risk. The pension funds faced margin calls on their loans, and the bond market seized up as they scrambled to raise cash.

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