Published by Global Banking & Finance Review®
Posted on March 27, 2026
3 min readLast updated: March 27, 2026
Add as preferred source on GoogleA sharp sell‑off in UK gilts has triggered a small number of cash calls on LDI hedges, but thanks to post‑2022 reforms such as higher resilience buffers and reduced leverage, the impact is far milder than during the Truss mini‑budget crisis.
By Iain Withers
LONDON, March 27 (Reuters) - Some British pension funds have been asked to put up more cash against hedging positions after a sharp selloff in UK government bonds, two pensions advisers told Reuters, though the impact so far has been far more limited than during the crisis that torpedoed the premiership of Liz Truss.
British government bond yields have surged as the Iran war triggered inflation worries, testing the derivative positions held by pension schemes known as Liability-Driven Investments (LDI) that were at the centre of the 2022 crisis under Truss.
Pensions consultancy XPS told Reuters that a small number of its clients needed to meet cash calls on LDI positions this month, but said the market was operating normally. Rival consultancy Mercer said it had knowledge of a fund that met a cash call this month, but that its own clients were unaffected.
The typically sedate corner of pension finance came into sharp focus in 2022 when huge jumps in UK bond yields following a 'mini-budget' under Truss triggered a wave of LDI cash calls and a firesale of assets, prompting the Bank of England to launch an emergency intervention. Truss resigned soon after, becoming the shortest-serving prime minister in British history.
Defined-benefit pensions use LDI strategies sold by fund managers to help match their assets with their liabilities.
The impact has been unlike 2022 due to a series of reforms that have made LDI less exposed to market swings, such as reducing pension schemes' leverage and ensuring they have more liquid assets to meet capital calls, the advisers said. The recent jump in borrowing costs has also been less sudden than in 2022 and most pronounced in shorter-dated gilts less commonly pooled by LDI, they said.
Nonetheless, if UK borrowing costs keep climbing, LDI positions could be tested further.
"If yields do keep going up, I suspect we will see multiple managers making capital calls. But again, I would expect that to be dealt with in an orderly fashion," said James Lewis, UK chief investment officer at Mercer.
BoE Deputy Governor Sarah Breeden said on Thursday Britain's gilt market had functioned well during the recent volatility and that LDI funds had proven resilient.
The Pensions Regulator said it was monitoring the situation, adding that LDI reforms were working well and schemes were significantly more resilient to market moves.
Several LDI providers including Insight Investment, Schroders, Legal & General, Russell Investments and adviser Gallagher said the market was orderly.
“It's not as stressed as it was in 2022... LDI funds have less leverage which means the margin calls don’t come at the same pace," said Van Luu, global head of solutions strategy at Russell Investments.
(Reporting by Iain Withers, additional reporting by Naomi Rovnick, Dhara Ranasinghe and Amanda Cooper; Editing by Tommy Reggiori Wilkes and Peter Graff)
UK gilt yields surged as the Iran war triggered inflation worries, impacting the bond market and derivative positions held by pension funds.
Some pension funds faced cash calls on their LDI positions, but the impact is limited compared to the 2022 crisis due to reforms and increased liquidity.
LDI strategies are used by defined-benefit pensions to match assets with liabilities using derivatives, aiming to manage risk from market swings.
Reforms reduced leverage in LDI strategies and required pension schemes to hold more liquid assets, making them more resilient to market moves.
Gilt market volatility is less severe and more orderly now, with cash calls happening at a slower pace thanks to regulatory reforms and better liquidity.
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