Gabor Pinter, Emil Siriwardane and Danny Walker In September 2022 the interest rate on UK gilts rose by over 100 basis points in four days. These unprecedent market movements are generally attributed to two key factors: the 23 September announcement of expansionary fiscal policy – the so-called ‘mini-budget’ – which was then amplified by forced … Continue reading What caused the LDI crisis?
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Joel Mundy and Matt Roberts-Sklar When markets are volatile, liquidity tends to worsen. This makes it harder to intermediate buyers and sellers. We saw this during the 2022 liability-driven investment (LDI) stress, when the UK government bond (gilt) market exhibited extreme volatility. This illiquidity was also evident in gilt futures, derivatives that support functioning in … Continue reading Futures under stress: how did gilt futures behave in the LDI crisis?
In modern states, demand for currency comes from the ongoing self-imposed liability for the currency. There is no need to pay savers in order for them to desire to hold the currency (interest on sovereign bonds issued for "deficit spending"). Any justification for doing so must rest on some other perceived benefit of paying savers.