tag:blogger.com,1999:blog-582368152716771238.post7035245267377066042..comments2024-03-29T04:41:56.077-05:00Comments on The Grumpy Economist: A familiar finance fable in UK bonds John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-582368152716771238.post-35440516314676290532023-02-25T01:41:23.676-06:002023-02-25T01:41:23.676-06:00So well written;)So well written;)axarentnerhttps://rentenversicherungen-testsieger.de/axa-rentenversicherung-test/noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-1901037518254079542022-11-29T11:39:57.344-06:002022-11-29T11:39:57.344-06:00Great post and thanks for sharing an article on ba...Great post and thanks for sharing an article on bail bondsmen. Jail is an overwhelming and frightening experience. A bail bond allows you to leave jail until your court date. For this to happen, a state-licensed bail bondsman, backed by an insurance company, guarantees the court full payment if the defendant fails to appear for their court date. If you are searching for immigration bail bonds, then GOODFELLAS BAIL BONDS, “FORGET ABOUT IT” is the best choice for you. A few months ago I have taken the services from them & it was great. Cameroon Roberthttps://www.blogger.com/profile/08882673173812264411noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69827154533679339412022-10-16T12:56:38.688-05:002022-10-16T12:56:38.688-05:00MSERS has adopted an "Overlay" strategy ...MSERS has adopted an "Overlay" strategy to manage the pension fund's estimated unfunded liabilities. The net position as at June 2021 was 63% of actuarial determined liabilities. I exclude the Judicial Plan from these remarks. Investment expense is $98 mm, losses on derivatives is $20 mm. Growth in net fiduciary position is attributed to investments in equities, hedge funds, etc. 2021 was a banner year in equity markets. One would be interested to see if the strategy being followed in fiscal 2021 resulted in a large decrease in the net fiduciary position in the year ending June 2022. Fiscal year 2023 will be of even greater interest, in terms determining hedging potential given the price declines this year in both fixed income and equities.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47178546222878931382022-10-10T09:15:01.308-05:002022-10-10T09:15:01.308-05:00Temporary Expanded Collateral Repo Facility (TECRF...Temporary Expanded Collateral Repo Facility (TECRF) announced: https://www.bankofengland.co.uk/markets/market-notices/2022/october/temporary-expanded-collateral-repo-facility-market-notice-10-october-2022 Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-68994770874936807962022-10-04T21:39:51.268-05:002022-10-04T21:39:51.268-05:00It’s a good question. Sure, inflation linked guilt...It’s a good question. Sure, inflation linked guilts were the proper hedge to pension liabilities , but you can’t ignore price. At negative 2% earlier this year they were just too expensive as a hedge. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50485222655442155882022-10-04T15:49:43.104-05:002022-10-04T15:49:43.104-05:00Another question. If you let the monetary genie ou...Another question. If you let the monetary genie out the bottle at 300 pounds per bond, and try to put it back but only get 60 pounds per bond, how much of the genie are you going to get back in the bottle?Nicknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-15175785727157174752022-10-04T15:24:22.265-05:002022-10-04T15:24:22.265-05:00And if you want to look at regulation failures, I ...And if you want to look at regulation failures, I recommend you take a look at the interest rate stressed in the Solvency II standard formula. Hey are supposed to be 1 in 200 year stresses but they've been blown out the water. Now Banks have had a free pass on duration mismatches under the Basel rules, since before the financial crisis. But how do you think 30 year mortgages are holding up in value against deposits?Nicknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81877914328596196622022-10-04T15:20:01.421-05:002022-10-04T15:20:01.421-05:00NickNickNicknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13726940853245432482022-10-04T15:10:13.389-05:002022-10-04T15:10:13.389-05:00Question. What was trading at 300 pounds towards t...Question. What was trading at 300 pounds towards the end of last year, and briefly touched 60 last week? A 40 year UK index linked bond. That's a 80% fall in value over the period of less than a year. Twice as big as the worse stock market falls we've seen historically in developed markets. But its 'only' a liquidity crisis because pension funds have been told their liabilities fall in parallel. John, you've been writing about the fiscal theory of inflation, and inflation expectations. You might want to look closely at the long end of the inflation linked curves in the US and the UK. Nicknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-78946196673925492142022-10-02T10:04:29.369-05:002022-10-02T10:04:29.369-05:00Less common in the Us, but there are definitely so...Less common in the Us, but there are definitely some US pensions that do it. I know that MSERS does something similar. Not sure if the leverage is structured exactly the same, but they run 40% leverage, I believe using treasuries. See their annual report. https://www.mosers.org/docs/default-source/funding/annual-reports/2021-acfr/2021-annual-report-financial.pdf?sfvrsn=b6e17ec1_13 <br />Was flabbergasted when the CIO mentioned this on stage at a conference Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23581652248516691732022-10-01T16:19:46.174-05:002022-10-01T16:19:46.174-05:00When I still advised sovereign debt management age...When I still advised sovereign debt management agencies on their derivatives use, I would emphasize the need to consider cash flow at risk (CFaR) as well as value at risk (VaR). They can both result from "mark-to-market" as discussed in the blog post, but typically the VaR perspective is better understood. CFaR only becomes an issue when you acknowledge that financing is not infinitely available, and is always harder to get the more you need it. <br /><br />I find the blog post (and comments) would benefit from some clarity on the distinction between the two risks. On a mark-to-market basis, the combined balance sheets of the UK pension funds may have been hedged or immunized against interest-rate movements in terms of VaR. (One of the goals of LDI.) <br /><br />The large market movements exposed CFaR. If pension funds needed to generate cash (or cash-like instruments) to provide as collateral against margin calls from their derivative LDI positions while their overall financial were healthy, they could in principle have entered repo transactions rather than outright sales of Gilt holdings. But increased capital requirements mean that banks have scaled back their activity in that market. Is that way pension funds resorted to outright sales in a falling market? Could the Bank of England have intervened by providing repo funding to pension funds instead of making outright open-market purchases or does that fall outside of the BoE's mandate? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80780049929443698802022-10-01T11:33:21.432-05:002022-10-01T11:33:21.432-05:00" if you have fixed nominal payments to make,..." if you have fixed nominal payments to make, invest in risk free assets that provide fixed nominal payments, and ignore the mark to market.". <br /><br />I believe your insertion of the word "nominal" was a critical component of an issue that is often ignored. Please correct me if you think I'm off base, but the mismatch between real liabilities and nominal bonds poses another practical problems for UK pensions (tongue twister!). Long-term inflation protected GILTs, the proper match were trading at under 2% real yields at the beginning of 2022. Matching real liabilities was just too expensive for most plans. After hitting a positive 2% last week, they are back down to 0...better but still costly. <br /><br />As an aside, LDI may not be as frequently used in the US, but it it used: https://www.nisa.com/primers/primer-on-liability-driven-investing/ if your interested in how those strategies are marketed. Again, they employ derivatives to achieve leverage, but also ignore the mismatch between pension liabilities that rise with inflation and bond investments that don't. <br /><br />So far US pensions have dodged the implications of that bullet. Like the UK, the US back-up in long-term nominal rates is less due to a change expected inflation and almost fully due to a dramatic increase in long-term real yields. Since late 2021, real yields on long dated TIPs have surged from a negative 50bps to nearly positive 2%. It seems like a golden opportunity for pensions (and individuals!) to get back onsides. Jon Seedhttps://www.blogger.com/profile/10891730332574311014noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37562527790552409382022-10-01T09:26:14.083-05:002022-10-01T09:26:14.083-05:00While not able to see the exact transactions enter...While not able to see the exact transactions entered in to, I find it surprising that with regard to interest rate derivatives no collars were placed around these bets which of course would limit upside, but would have limited downside losses.<br />More interesting perhaps is the amount of leverage public and private pension funds are allowed to have. They usually have requirements for diversification and max investment in any given asset class. Boards of these pensions are equally culpable with any degree of accountability of regulators it would seem.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64905113211799007392022-10-01T09:09:58.642-05:002022-10-01T09:09:58.642-05:00Amazing how the markets are always so efficient th...Amazing how the markets are always so efficient that supposedly no one can see it coming, yet - mirabile visu - just inefficient enough that a little more regulation is ALWAYS the answer. How uncanny. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84455746303286362952022-09-30T17:48:05.031-05:002022-09-30T17:48:05.031-05:00A simple question. What choices are there really t...A simple question. What choices are there really to get out of the hole? (I'm limiting the valid answers to those that are socially and politically acceptable which eliminates: *Austerity, *Default without bailout, *Higher taxes (al-la post WW2), *Global debt jubilee. Without some or all of these, there will be more of the same Ponzi-ism with different names and twists. Over and over. It may even be too late for those solutionsHerbert Schmittnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-11745458165394590192022-09-30T15:23:43.132-05:002022-09-30T15:23:43.132-05:00You can also feel the insidious effects of moral h...You can also feel the insidious effects of moral hazard coming out of this. No one wants to face Mark to market in a panic so of course there's x post justification for the Fed or the central government to bail out the pensions. And how dare anyone take away pensions from hard-earned university professorsAjit Kirpekarnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71345536109562443372022-09-30T14:29:31.259-05:002022-09-30T14:29:31.259-05:00Thanks for this sane analysis and your last paragr...Thanks for this sane analysis and your last paragraph (Over and over) underscores the current crisis on lack of accountability in government and unforeseen risks despite the resources devoted to bank supervision. Please do the same for the fiscal expansion dreams which have hit the hard wall of inflation... KwakuAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64964609387588870562022-09-30T13:55:20.604-05:002022-09-30T13:55:20.604-05:00This English problem arises only because of the pr...This English problem arises only because of the promise to pay out fixed nominal pensions (or pensions indexed to inflation.) In other countries the retiree takes on the rate of return of return risk, which should be manageable over the relevant time period, which is several decades. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29118292304507692652022-09-30T13:41:01.746-05:002022-09-30T13:41:01.746-05:00"[T]he same crew (...) is off on the quest to..."[T]he same crew (...) is off on the quest to stress test banks for climate change. "<br /><br />To expect that they will proceed with care is almost delusional at this point. Still, I'm a little bit puzzled by the international coordination on that front as it's something I would have expected in the United States more than in Europe. I can imagine the gridlock in Congress to motive the left-leaning intellectual class to engage in "legislation by other means": leveraging existing legislation to enforce new demands seems like the obvious course of action from their perspective.<br /><br />That the same discussions occur in Europe and in Canada is kind of a surprise to me. Over here, Trudeau has had enough power with the socialists (NDP) on his side to basically do whatever the hell he wants on climate and Germany basically screwed its own energy security over to please the environmentalists. Why aren't they just legislating changes without the excuse? Maybe it sounds scarier to repeal financial regulation than climate regulation, so they feel it would be safer to work that way.<br /><br />In any event, I'm not sure I buy "climate as a systemic financial risk" so I'm leaning towards "those people don't buy it either." Stéphane Surprenanthttps://www.blogger.com/profile/12323914156735134263noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-3782875397501226642022-09-30T13:35:56.104-05:002022-09-30T13:35:56.104-05:00In the U.K., L.D.I. was encouraged by the regulato...In the U.K., L.D.I. was encouraged by the regulators, according to reports this week in The Wall Street Journal. In those same WSJ reports, it is said that L.D.I. is not used as much in the U.S.<br /><br />Different country approaches, e.g., U.K. vs. U.S., will limit contagion to an extent in much the same way contagion was limited to ASEAN members and S. Korea during the Asian banking crisis of the 1990s.<br /><br />Why would Blackrock, etc., jump in to U.K. gilts? Blackrock's ESG funds are limited to its non-Index ETFs and its actively managed mutual funds.<br /><br />Margin is limited to 90% in U.S. Treasuries. Can't say what it is in the U.K. markets, but it is hard to believe that it would ever be 100%.<br /><br />You have a typo in the 1st sentence of the 2nd para.<br /><br />Mark-to-market is required for trading stock. Securities held to maturity are not required to be marked down to market values. But the choice of which accounting and tax rule to adopt for securities designated as held to maturity is at the option of the fund management.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.com