Path-dependence and lessons from the UK pensions fiasco
This is where it starts getting awry. The globally coordinated interest rate increase cycle was already pushing 30-year swaps higher, thereby increasing the cost for pension managers. With the UK's mini-budget announcement, these swaps exploded to levels literally seen never before (jumping from 2 per cent to over 4 per centWith this, the pension managers were called upon to post additional money as collateral to the clearing house. The only way they can generate additional margins is by selling the gilts that they own.