Hedge funds accounted for nearly 30% of gilt trades last year, nearly doubling their shares since mid-2018. The increased participation of highly leveraged funds has potentially accelerated gilt market swings during crises, reflecting their shorter holding horizons and lesser tendency for ‘home bias’. This may see the higher likelihood of holders of UK government debt today selling rather than holding or buying even more gilts during crises.
Factors such as this may undermine the resilience of the UK bond market. UK markets becoming more pro-cyclical during domestic or global crises rather than counter-cyclical may be a meaningful concern for the UK’s comparatively risk-free AA credit ratings.
Although the Global Use of Sterling Has Been Little Changed Recently
To date, despite great challenges such as Brexit, holdings of global allocated reserves in sterling have seen little change…
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