. 'The crisis has been brewing for some time due to increased market volatility and investors' risk aversion, but it worsened when pension funds and other market participants decided to increase their liquidity holdings in anticipation of the September/October gilt crisis.' Mr Bouvet said the strong demand for the shortest dated bonds in the Bank's first QT sale reinforces the 'impression of a shortage of bonds' in this part of the gilt market. Bank of England Governor Andrew Bailey admitted on Thursday that traders have highlighted to officials ongoing issues in the market. Threadneedle Street was forced to buy billions of pounds of 30-year bonds to ease a crisis at pension funds after the mini-Budget market chaos. Liability-driven investment (LDI) funds scrambled to meet huge cash calls to shore up their hedges following the surge in gilt yields. The International Capital Market Association, which represents the bond market's biggest traders, warned last month of a scarcity of liquid assets in the eurozone's repo and money markets.){kind=link}
Analysts are pointing to mounting stress in UK gilts and the ‘repo’ market
The Bank of England risks hurtling toward another bond market crisis as new signs of strain bubble up and threaten to force another intervention, City traders have warned.
Traders have pointed to mounting stress in the so-called “repo” market and short-dated UK debt, known as gilts, just weeks after the post mini-Budget bond chaos pushed Britain’s pensions funds to the brink of collapse.
Repo markets are a crucial part of the financial plumbing where cash is lent in return for collateral such as government debt. They are an important source of short-term funding and collateral for banks.
Analysts warned over a potential shortage of gilts as they pointed to signs of pressure in the Bank’s first bond sales under quantitative tightening (QT) last week, the reversal of quantitative easing. Experts believe Threadneedle Street could need to step in again to smooth the running of markets after it was forced to launch bond purchases to ease turbulence in the wake of the mini-Budget.