Bank of England ‘closely monitoring’ liability-driven investment funds as bond support nears end

The Bank of England said on Wednesday it was “closely monitoring” liability-driven investment funds ahead of the end of its support for the bond market on Friday.

However, the BoE has said from the start that its gilt purchase program is temporary, ending on Oct. 14, and Governor Andrew Bailey said on Tuesday that if funds needed to restructure, they had just three days left to “get this done.”“The Bank, The Pensions Regulator and the Financial Conduct Authority are closely monitoring the progress of LDI managers as they put their funds on a sustainable footing for whatever level of asset prices prevails when the Bank ceases purchasing gilts,” it said.

While funds could not be expected to prepare for every market shock – and many LDI funds were based outside Britain – regulators would soon seek to tighten rules, the FPC added. More broadly, the BoE said the global economic outlook had deteriorated significantly since July, and rising interest rates would pose growing challenges to households, though banks remained well capitalized.

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