The head of the City watchdog has admitted that it was not prepared for the risk posed to pension funds by the sharp rise in UK bond yields after Kwasi Kwarteng’s mini-Budget.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told a House of Lords select committee that the threat had not been ‘right at the top of the radar’.
Peers are examining how a bond market sell-off after Kwarteng’s disastrous fiscal statement prompted a crisis in pension funds resulting in a £65billion Bank of England intervention.
Liability-driven investment strategies were dragged into the spotlight in September in the wake of then chancellor Kwasi Kwarteng’s disastrous mini-Budget
The collapse in bond prices left liability driven investment (LDI) funds used by some pension schemes scrambling for cash.
Rathi explained that yields on UK bonds – which move in the opposite direction to prices – soared by 2.5 percentage points in just five days ‘which has just never happened at any major time in our history, that particular risk wasn’t tested for’.
