The Bank of England has suggested that UK pension funds prepare for increased gilt market shocks. The bank has warned that markets often overestimate the size of quantitative tightening (QT) to be done by the banks, leading to a jump in government yields. The drawdown will be more severe during times when there is a large demand for liquidity, such as in times of economic slowdown.

Pension funds at risk amidst global turbulence

Pension funds should be prepared for the increased gilt market shocks, as these funds often hold a significant amount of government bonds. The bank’s warning comes amidst a time of economic uncertainty due to Brexit as well as global turbulence. The unpredictability of the markets suggests that investors and pension funds should be cautious.

The Bank of England urges pension funds to diversify investments

However, the Bank of England’s warning does not suggest that investors should sell gilts. Instead, investors should be aware of the risks and consider diversified investments rather than solely focusing on a single product. This advice is critical for pension funds that have a large amount of their investments in gilts.

Read More Here https://www.ft.com/content/2abae066-9f1d-461d-abaa-4bd162eb3ec4

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