/biz/ - Business & Finance

>>51694952
On September 26, 2022, the entire UK pension fund almost completely broke, if not for the intervention of the Central Bank of England.

For some reason, UK pension funds entered into these liability driven investment strategies where it entered into leverage interest rate swaps, where it would pay variable rates but receive fixed rates.

In other words, UK pension funds bet that interest rates would not go up, and received fixed interest rate payments, while paying low variable interest rate payments.

Back then, I assume nobody would enter into these types of agreements unless it's leveraged to benefit the other side (investment bankers).

So when interest rates started to go up, these leveraged interest rate swaps, pension funds started to have to pay variable interest rates x7 while continuing receiving fixed interest rate payments, resulting in large unrealized losses, and got margin called.

On September 25, 2022, the GBP dropped all time lows to against USD, and at one point fell 4% against USD within minutes to an all time low of $1.0382. The circuit breaker had to kick in.

On September 26, 2022, traders pressure bank of England to raise its overnight interest rates by 200 bps in order to defend the pound against falling and continue devaluing. This cause the 30 yr yield curve to spike over 200 bps.

(cont)