UK LDI Gilt Crisis 2022
September 2022’s UK gilt crash was a liability-driven-investment margin spiral: leveraged duration in pension LDI funds met a fiscal shock and forced gilt sales until the BoE bought the market.
Definition
LDI used gilt repos and swaps to hedge long pension liabilities. A sharp yield rise required more collateral. Selling gilts to raise collateral raised yields further — a classic fire-sale loop. The mini-budget was the impulse; the structure was the amplifier. The Bank of England’s temporary purchase was the LOLR in the ‘safe’ asset.
Why it matters
It is 1998/2008 mathematics in a pension wrapper. ‘Hedged’ liability books can be short liquidity.
Case
23–28 September 2022: 30-year gilt yields gaped; BoE delayed QT sales and bought long gilts for a defined window; the fiscal plan was withdrawn. Funds that posted collateral early survived.
How to read it
Repo leverage on the hedge, the speed of yield moves, and whether the CB will buy the collateral asset. If the hedge is the same bond everyone must sell, it is not a hedge in a spiral.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- LDI and the gilt marketBank of England / PRA letters 2022–23 · 2023 · Bank of EnglandOfficial LDI resilience work after the crisis.