Liability-driven investment: the “doom loop” in the bond market

LDI – an investment strategy used by defined-benefit pension funds – was at the centre of last week’s panic in gilts. What exactly happened, and how was it tackled?

A statue outside the Bank of England
The Bank of England intervened to prevent a bond-market panic
(Image credit: © Getty Images/iStockphoto)

Following the Truss-Kwarteng mini-Budget of 23 September, which was widely deemed fiscally incontinent, the market for UK government bonds (gilts) took fright. Demand for long-dated gilts fell sharply and rapidly, meaning their price slumped and gilt yields (which move inversely to prices) soared.

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Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.