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Bank of England flags spillover risks from elevated hedge fund gilt leverage

Дата публикации: 01-10-2026 08:53:00

The Bank of England (BoE) has warned that elevated hedge fund leverage in the UK government bond market, combined with exposures to artificial intelligence assets and corporate debt, could increase the risk of stress spreading across financial markets, according to a report by Bloomberg.In its latest financial stability assessment, the central bank said the interaction between vulnerabilities across different markets meant that strains could crystallise simultaneously, increasing the potential for a sharp market adjustment.Hedge fund leverage in the gilt market has remained broadly stable, according to the BoE, but continues to sit at elevated levels. The central bank said the interconnected nature of market vulnerabilities meant the risk of a significant repricing remained.The warning comes as 10-year gilt yields have risen towards levels last seen around the global financial crisis, putting renewed focus on the resilience of the market and the funding structures used by leveraged investors.The BoE's Financial Policy Committee is considering measures designed to strengthen the resilience of the gilt repo market, where institutions borrow cash against government bonds. The work is also examining risks arising from the increase in market leverage over the past 18 months, with potential measures expected to be published in early 2027.Sterling repo markets have expanded significantly in recent years, increasing the reliance of non-bank financial institutions on gilt-based funding. According to Sterling Money Market Daily data cited by the BoE, net cash lending by gilt repo dealers to non-bank financial institutions has doubled since 2023 to about £200bn.The central bank has previously highlighted the risks associated with hedge fund leverage in the gilt market. It is now also assessing how those risks could interact with vulnerabilities elsewhere, including elevated valuations in parts of the technology sector and growing corporate debt issuance linked to artificial intelligence investment.A sharp move in gilt prices could therefore have consequences beyond the government bond market if leveraged investors are forced to reduce positions or unwind trades, potentially creating additional demand for liquidity across markets.Government bond yields have also been pushed higher by broader global pressures. The BoE said renewed conflict in the Middle East and associated increases in oil, gas and refined-product prices were creating a more prolonged negative energy supply shock, raising concerns about the persistence of inflation.Higher energy costs, heavy government borrowing, rising debt-servicing expenses and increased debt issuance by AI-focused companies are all contributing to pressure on yields.The BoE warned that a prolonged period of elevated sovereign borrowing costs could tighten financing conditions for households and businesses, increase market volatility and reduce governments' ability to respond to future economic shocks.

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Классификация: Экономика. Схожих патентов: 0. Схожих новостей: 10. Тональность: 0. Информативность: 4.62. Источник: www.hedgeweek.com.