For the second time in less than three years, the Bank of England has made an emergency intervention in the market for UK government bonds. Investors rushed to liquidate assets, including money market funds which held UK government bonds. The latest intervention was triggered by excessive leverage in UK pension funds, which had borrowed to boost returns using a strategy known as liability-driven investing (LDI). To prevent future blow-ups, regulators could cap money market funds’ exposure to less liquid assets, reducing the risk of a run by investors. Financial market regulators in European fund centres like Ireland and Luxembourg have stepped up surveillance of LDI strategies used by UK pension funds, the Financial Times reported on Oct. 28.

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