The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Derivatives market: What’s going on with UK LDI flows?

Last year’s rush by UK pension funds to de-risk, either via interest rate and inflation swap overlays or by switches out of equities and into fixed income, was headline-grabbing. Yield curves remain inverted but the headlines have gone. Roger James finds out why.

A version of this article first appeared in Total Derivatives.

Total Derivatives is the prime source of real-time news and analysis of the global fixed income derivatives markets.

The sterling fixed-income market appears to be facing an impasse, particularly at the ultra-long end where two views tend to clash. On one hand is the view that it is "business as usual" in long-dated nominal and real markets, and that flows – including liability-driven investment (LDI)-related flows – will continue to invert both those yield curves.

Alternatively, traders are increasingly complaining that they aren’t seeing LDI flows in anything like the quantities seen last year. Which is true?

In contrast to traders, global actuarial/consultancy group Watson Wyatt fails to flag any slowdown in LDI activity. Stephen Yeo, a senior consultant at Watson Wyatt, says that a combination of rising bond yields and strengthening equities had shrunk the collective pension deficits of the FTSE100 companies to a mere £31.8 billion ($61.8 billion) on January 31, a fall of £8.2 billion from the end of December. He says that "as schemes get more fully funded, the more willing they typically are to do LDI transactions and the keener they are to lock in at lower deficit levels."

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree