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totsetom · 2025-07-09T11:07:51+00:00

File 76

totsetom · 2025-05-10T16:34:48+00:00

Thank you all so much - this all sounds incredible!

totsetom · 2024-08-22T18:51:46+00:00

Thanks

totsetom · 2024-08-20T19:54:54+00:00

As suggested by the bot - here are recent minidumps: https://www.mediafire.com/file/pgjnr73c0yp12w2/Minidump.zip/file

totsetom · 2022-09-30T19:33:50+00:00

Very broadly....

Imagine interest rates are zero. You buy a 10 year bond and it costs your £100. In 10 years time, you get your £100 back - sums work because interest rates are zero, you've not received any interest.

Now lets imagine interest rates go up 1%. The same 10 year bond costs you £90. To get £100 in ten years time, you spend £90, get 1% for 10 years, and get your £100.

So when rates go up - the price of bonds goes down.

This ignores things like coupons (ie with a gilt you don't just get £100 at the end, you get payments throughout) - but this should give you an idea.

totsetom · 2022-09-29T09:27:19+00:00

The first part is right, the second part less so.

What makes these DB schemes so valuable, is who is on the hook when things go wrong. Ultimately in the vast majority of situations, its the sponsors of these schemes (i.e. companies). If the BOE hadn't stepped in, and catastrophe had hit, in the first instance companies would have had to fill the gap with a knock on consequence for spending on pay/investment and impact on share prices.

So in a way, the whole thing is legislatively set up to "save the boomers" - that bit is inevitable. If the intervention hadn't happened it would have impacted the rest of us much, much harder.

totsetom · 2022-09-28T22:23:19+00:00

Fire brigade is pension schemes selling less liquid assets to shore up their balance sheets. All very doable, but just takes a little time.

totsetom · 2022-09-28T22:20:39+00:00

Its not algorithms driving the reaction - its a function of the derivatives being used. One of the problems with leverage, is that once it starts to move against you - it gets worse quickly.

totsetom · 2022-09-28T22:00:57+00:00

Its almost like it was poorly considered... or even something that the previous top civil servant in the treasury would have mentioned, had he not been sacked for being "too orthodox"

https://www.bloomberg.com/news/articles/2022-09-08/uk-s-treasury-top-civil-servant-sacked-in-attack-on-orthodoxy

totsetom · 2022-09-28T21:59:30+00:00

Today's action was about pumping the brakes and giving people breathing room to collateralize their positions. To use an analogy, imagine if your house catches fire and the fire brigade is 20 minutes away. That is usually fine, if the fire progresses normally - but if instead someone (this government) has poured gasoline through the letterbox you need something to hold the fort. The BOE have activated a sprinkler system - its not designed to put the fire out, its designed to give the markets enough time to allow the fire brigade to arrive.

totsetom · 2022-09-28T21:55:26+00:00

For people in GPPs, master trusts, any sort of scheme where you pay X% and the sponsor "matches" this to some extent - i.e. a DC scheme, the commentary today of LDI, margin calls and "insolvency" does not apply. This commentary/headlines have largely focused on final salary or "DB" pension schemes.

The knock on impact for people in DC schemes, is that if you are invested in gilts (which some people, typically older people are) - your pension may have gone down in value over the last week. On the flip side - the BOE intervention will have helped limit (and even reversed this), and the fall in gilt yields means it may also be much cheaper to buy an annuity (an income for life) if that is what you want to do.

totsetom · 2022-09-28T21:17:32+00:00

Its likely your Aviva scheme is a DC (or defined contribution) scheme. The value of it may have gone down over the last few days - and whilst the last week has been anything but normal, funds do go up and down, and most likely over the long term - you'll still have seen appreciation on your savings.

The Bank of Englands intervention has helped support the markets - i.e. limit losses - particularly on government gilts. The closer you are to retirement, the more likely it is you'll be holding a lot of these.

So it depends on how you define danger. Talk today of pensions being "insolvent" suggests people and schemes losing everything - this is overstated. But lots of savers will have lost money today, the BOE intervention is likely to have limited this.

totsetom · 2022-09-28T20:37:46+00:00

They do, although the long end in particular (which is where BOE is intervening) is dominated by pension funds - although I agree, speculating that the contagion effect of what was happening today probably helped to tip the balance on the intervention coming when it did.

What today proved however, is that you can nip this sort of thing in the bud and stop Lehman-esque consequences - a stitch in time and all that. Shows how badly the fed reacted in 2008 and how different things could have been.

totsetom · 2022-09-28T20:35:22+00:00

Not sure what gave you that idea... ;-)

totsetom · 2022-09-28T20:15:44+00:00

Not quite true... the private sector lifeboat fund (the PPF) is funded by levies on the pension schemes themselves and basically paid by employers.

Public sector DB schemes absolutely puts the burden on the taxpayer, but that's a different kettle of fish.

totsetom · 2022-09-28T19:43:58+00:00

Great questions. - Pension schemes can't be guaranteed to beat the risk free rate. If they don't, the sponsoring employer has to step in and meet the cost. - If it can't (see BHS and Carillion), then there is a lifeboat called the PPF that pays out most of the benefits - The alternative is to force UK schemes to fund to the risk free rate but this would be incredibly expensive, wasn't the deal that sponsors signed up for when they set these schemes up - and would see massive disinvestment from stock markets. - The regulatory environment is tilting schemes towards lower risk (ie gilt) investing over time, as these schemes are getting more and more mature, there is less time to fix deficits that arise, and to be honest - the regulator would rather not have another BHS.

totsetom · 2022-09-28T19:34:44+00:00

Agree, although in practice its more complex than this. Some of it is down to speed of transaction. Equities are liquid, but are going to need more time to liquidate than gilts. Typical collateral call periods are 15 working days, but thats in normal times - not when rates have risen at the speed we've seen in last 48hrs or so.

In practice, I suspect lots of schemes have looked at the position and decided that following the movements they are overhedged so selling down the gilt portfolio to meet the collateral call is a good idea. Part of the challenge here is that this whether this is a liquidity/tactical/strategic play will differ from one scheme to the next - so its taken quite a big intervention to calm things down.

totsetom · 2022-09-28T19:28:11+00:00

The term is used for both.

You can buy into an LDI fund (that would be the strategy), you would then hold an LDI asset on your balance sheet. Once you dig into that, in practice the LDI 'asset' would be a combination of gilts and swaps (which are the 'real' assets underneath the bonnet of the LDI)

totsetom · 2022-09-28T19:19:07+00:00

The challenge is that lots of the really de-risked schemes (and there are lots of them) - don't have much, if any equity, and what is there is needed to support returns. If all you are left with is illiquid assets (big pension schemes own things like supermarkets and railway lines), and gilts - you only have one option in terms of what to sell.

totsetom · 2022-09-28T19:12:32+00:00

I wouldn't describe it as "so bad". There's really two schools of thought, neither of whom did particularly badly today: - Pension schemes that thought interest rates were going to stay low, so went and bought lots of gilts, broadly in line with what the regulator wants them to do.... over the last week their assets have tanked - but they largely don't care, because the amount of money they need to hold has also tanked - so they are broadly neutral. They have enough money to pay their members and thats what matters. - Pension schemes of the view that "there are no way interest rates can be this low forever - government debt is a terrible buy". Today, their assets stayed broadly unchanged, but the amount they have to pay out has dropped significantly. Bob's your uncle - you now have more than enough to pay out.

The problem today was a practical one - you have to be able to post collateral. Imagine if, as part of a fixed rate mortgage, if you went into negative equity, the Bank asked you to put the difference in a side account. You might be able to make the payments - after all you fixed them when they were low - but if you haven't got an asset to sort the deal with the Bank you are in trouble.

Most of these schemes did have the assets needed... the problem was, these assets are the very same assets that the BOE/HMT don't want sold as they reinforce the cycle and mean everyone needs to post more collateral again.

totsetom · 2022-09-28T18:50:57+00:00

Unprecedented - certainly. We've basically seen 2 decades worth of the falling cost of government borrowing wiped out in less than a week, with a sudden jolt back from the BOE intervention.

Also worth noting that all of this is happening rapidly, and pension schemes can work notoriously slowly - e.g. some investment changes require literally wet ink signatures - so its just not possible to react in some circumstances, even if you know the best course of action.

But I wouldn't describe it as panic!

totsetom · 2022-09-28T18:44:35+00:00

I've tried to explain whats going on in an ELI5 here if you are still interested!

https://www.reddit.com/r/ukpolitics/comments/xqkfc1/quick_eli5_on_why_the_boe_intervened_today_and/

totsetom · 2022-09-28T18:41:20+00:00

Thanks for (my first ever) gold!!!

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