The 2022 UK Gilt LDI Crisis

On 23 September 2022, the UK government announced a package of unfunded tax cuts — the "mini-budget" — with no accompanying costing from the independent fiscal watchdog. Bond investors read it as a large, uncosted increase in government borrowing and sold UK government bonds, gilts, hard. Over the following days, 30-year gilt yields rose by well over 100 basis points — a move that would normally take months, compressed into less than a week. That speed, not the size of the move by itself, is what turned an ordinary bond selloff into a systemic near-miss centered on the UK's own pension industry.

Why pension funds were the epicenter

By 2022, the majority of UK defined-benefit pension schemes used leveraged LDI strategies of the kind described in LDI hedge ratios and leveraged gilt strategies — holding gilts and gilt derivatives scaled up with repo or swap leverage to hedge liabilities several times the size of the actual gilt holdings. That leverage meant every basis point of yield rise cost the scheme's gilt sleeve several times what an unleveraged holding would have lost, and every loss triggered a margin or collateral call from the repo and swap counterparties on the other side of the trade.

Schemes met the early calls out of cash buffers, as designed. But the speed and size of the move burned through those buffers within days, not weeks. To raise more cash, fund managers had to sell assets — and the fastest, most liquid asset available to sell was, overwhelmingly, more gilts. Selling gilts pushed gilt prices down further and yields up further, which generated the next round of collateral calls across the entire LDI-using pension industry simultaneously, since most schemes were running broadly similar strategies against the same underlying market move.

Stage	What happened	Effect
Mini-budget announced	Uncosted tax cuts spook gilt investors	Gilt yields begin rising sharply
Yields spike	30-year yields rise over 100bp in days	Leveraged LDI positions lose value fast
Collateral calls	Repo/swap counterparties demand more collateral	Schemes must raise cash quickly
Forced gilt sales	Schemes sell gilts to meet calls	Gilt prices fall further, yields rise more
Bank of England intervenes	Emergency, temporary gilt-buying program announced	Yields stabilize; schemes given time to rebuild buffers

The Bank of England's intervention, and why it worked

On 28 September, five days after the mini-budget, the Bank of England announced it would temporarily buy long-dated gilts, in unlimited size within the program's window, specifically to restore orderly market conditions. It was explicit that this was not a change in monetary policy stance but a financial-stability operation — the Bank stepped in as a buyer precisely at the moment the market lacked one, buying the exact instrument that pension schemes were being forced to dump.

The intervention worked quickly: 30-year gilt yields, which had risen from around 3.7% to briefly above 5% in the days after the announcement, fell back sharply once the Bank confirmed it would buy. The purchase program itself was modest relative to the size of the gilt market — the point was less the quantity bought than the signal that a buyer of last resort existed, which gave pension schemes room to raise collateral through calmer channels (asset sales spread over time, capital calls to sponsoring employers) rather than dumping gilts into a falling market all at once. The program was closed within about two weeks, and the government itself reversed most of the mini-budget's tax measures shortly after, removing the original trigger.

The lasting regulatory response was to require larger cash and liquid-asset buffers behind leveraged LDI positions — sized to survive a move considerably larger than 2022's, not just a typical one — so the next sharp rate move triggers collateral calls that schemes can meet without becoming forced sellers of the very asset the whole market needs to stay orderly.