Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Bank of England begins emergency bond purchase programme to restore stability

bloomberg.com

Post reply on HN
Print view View original

41–47 of 47 posts

Re: Bank of England begins emergency bond purchase programme to restore stability

#41

Post by JumpCrisscross »

ctrlmeta wrote: post #17
presioneaqui wrote: post #15

Earlier quoted context omitted.

1) Pension funds (and other institutional investors) own government bonds. 2) They have also purchased risk/hedging products and posted these bonds as collateral. 3) As interest rates rise, the value of these bonds fall. 4) As the value of these bonds fall, these institutions are asked to post more collateral. 5) To come up with more collateral, they sell more of their bonds, dropping the price even more. 6) They are…

> 4) As the value of these bonds fall, these institutions are asked to post more collateral. Why do the pension funds (and other institutional investors) need to post collateral? Where do the pension funds post their collateral to? I guess I will understand why collateral is required if you can explain me what would go wrong if the pension funds were not made to post collateral.

> why collateral is required if you can explain me what would go wrong if the pension funds were not made to post collateral

They're trading something everyone has to post collateral (a/k/a margin) on. This usually involves leverage, e.g. if they're buying futures [1].

The collateral is there for the broker and clearinghouse to sell if the pension fails to hold up its end of the deal. When the value of the collateral falls, the broker demands more to ensure they're covered.

[1] https://www.cmegroup.com/education/courses/introduction-to-f...

Re: Bank of England begins emergency bond purchase programme to restore stability

#45

Post by thehappypm »

yrgulation wrote: post #32
thehappypm wrote: post #30

Earlier quoted context omitted.

Less spending would help inflation. More spending makes it worse. Lower taxes is madness right now

At some point we’ll just work for no money and instead the government will provide, a bit like in communism. Thats where over taxation leads. Inflation means increased taxation while you also get to keep some of the money to you know live a little.

This is a huge stretch. Austerity isn’t being called for.. stimulus is being criticized.

Re: Bank of England begins emergency bond purchase programme to restore stability

#46

Post by than3 »

JumpCrisscross wrote: post #40
than3 wrote: post #33

Earlier quoted context omitted.

This is all by design. You seem to misunderstand and think those people that promoted those things are already dead. They aren't. Its why they continue pushing for the bailouts. They've held onto power, and the cohort is starting to crumble. You can't fire anyone in government, its a longstanding structural issue with why it underperforms in just about every way.

> is all by design This is a comforting thought, but no. It isn't. These are complex, dynamic systems with emergent properties navigating a landscape which is itself complex and dynamic.

It can be by design and also be complex and chaotic (i.e. both), and the cycles we are seeing have happened before.

They just have not happened in our lifetime, its surprising how few people bother reading and understanding the value of history.

As for what this action means, there was a time for course correction, for them to act, and that time has come and gone. Instead they tripled down on the failing strategy of kicking the can down the road for a short term extension.

That leaves a knifes edge between currency death by hyper-inflation, or currency death by deflation (which follows inflationary stagflation).

Both lead to unrest from the breakdown in the division of labor and energy markets often see it first since the cost of everything is derived by energy for transportation.

It astounds me how many politicians and policy makers think they can just kick the can down the road without any consequence following a strategy of I won't be around when it comes due. The bill for debts always comes due.

Re: Bank of England begins emergency bond purchase programme to restore stability

#47

Post by naveen99 »

presioneaqui wrote: post #15
ctrlmeta wrote: post #3

I asked this in a different post but did not get any answer, so asking it here hoping someone can help me understand this. Can someone more financially literate than me explain how BoE buying government bonds is going to restore financial stability? Will it slow down the falling pound? Will it reduce inflation? What mechanisms are at work here?

1) Pension funds (and other institutional investors) own government bonds. 2) They have also purchased risk/hedging products and posted these bonds as collateral. 3) As interest rates rise, the value of these bonds fall. 4) As the value of these bonds fall, these institutions are asked to post more collateral. 5) To come up with more collateral, they sell more of their bonds, dropping the price even more. 6) They are…

government bonds are used for collateral allowing banks to go 10-20x leverage. When some of those 10 year bonds lose 25-50% of their value, banks get in big trouble. I bet pension funds are a small part of the problem but are being used to save face of the banks, money market funds, and other dealers of bonds.
Post reply on HN