The world has endured harsher rate environments than this. pensions can’t handle yields backing up from preposterously low levels to still-low ones, is something breaking, or was it already broken? So now pension managers must put up money in a hurry, or sell at a loss.īut if U.K. And it seems the math didn’t anticipate a one-month, multi-point jump in gilt yields. It uses leveraged derivatives to artificially fit portfolio assets to the cash flow needs of pensioners, rather than, well, actually fitting those two things. pension funds use a strategy called liability-driven investment, which sounds benign, but isn’t. A panic there last month over the new government’s announcement of unfunded tax cuts sent yields up in a hurry, with 30-year issues topping-brace yourself-5%. Management is reviewing its options and will announce a plan later this month. But the costs from that would hit upfront, so Credit Suisse might need to raise funds to pull it off, or to calm investors. What’s needed, then, is a full-hearted restructuring that ditches all but the safe and stable bits of investment banking. But it’s better at asset gathering and wealth management. Credit Suisse’s problems appear both less acute and farther-reaching: It isn’t good at being a big investment bank, based on many years of low returns, occasional scandals and losses, and halfhearted restructurings. Lehman was brought down by bad bets on iffy mortgages. But Credit Suisse’s capital position is “comfortable” for now, says The bank’s cratered share price and recent spike in credit default swaps, a type of bet on financial distress, have drawn comparisons with Lehman Brothers, which went bust in 2008. If there’s one thing investors had better hope doesn’t break right now, it’s something, I’m pretty sure. “The Fed is breaking things,” a money manager told CNBC.
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