Fund faced collapse if yields had ticked higher - report

A fund faced collapse if gilt yields had risen significantly as trading got underway this week, it was reported on Monday.

According to Sky News, just a 0.5 percentage point rise in long-term government bond yields would have forced the unnamed fund to conduct a fire sale of government bonds. Sky News did not name the asset manager, and said it was "protecting" the identity of the fund.

Regulators held discussions over the weekend with officials at the Bank of England about the fund and potential outcomes, although it is understood officials were confident that its collapse would not have provoked a system-wide problem that would require its intervention.

There had been fears that, with the BoE’s emergency support for government bonds ending on Friday, gilt yields could push higher on Monday. However, yields ticked lower, saving the fund, which is now expected to survive, Sky noted.

Had yields moved up by 0.5 percentage points, it would have provoked a series of knockouts, Sky explained. Knockouts are when a fund hits thresholds and is forced to sell its gilts. The scale of the forced sales would have been around £100bn, which the BoE believed was "manageable".