Of course that leverage needs to be well managed. The rise in yields in late September – 130 basis points in the 30-year nominal yield in just a few days – caused a significant fall in the net asset value of these leveraged LDI funds, meaning their leverage increased significantly. And that created a need urgently to delever to prevent insolvency and to meet increasing margin calls. The funds held liquidity buffers for this purpose. But as those liquidity buffers were exhausted, the funds needed either to sell gilts into an illiquid market or to ask their DB pension scheme investors to provide additional cash to rebalance the fund. Since persistently higher interest rates would in fact boost the funding position of DB pension schemes[1], they generally had the incentive to provide funds. But their resources could take time to mobilise. The issue was particularly acute for one small corner of the LDI industry – pooled funds. In these funds, which make up around 10-15% of the LDI market, a pot of assets is managed for a large number of pension fund clients who have limited liability in the face of losses. The speed and scale of the moves in yields far outpaced the ability of the large number of pooled funds’ smaller investors to provide new funds who were typically given a week, in some cases two, to rebalance their positions. Limited liability also meant that these pooled fund investors might choose not to provide support.
Gent Sejko: Overview of Albania’s latest monetary and economic developments and outlook Speech by Mr Gent Sejko, Governor of the Bank of Albania, on the Monetary Policy Decision of the Bank of Albania’s Supervisory Council, Tirana, 4 March 2015. *  *  *  Today, on the 4 of March 2015, the Supervisory Council of the Bank of Albania reviewed and approved the Interim Monetary Policy Report. After scrutinising the current and expected performance of inflation and other economic indicators, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged at 2.0%. *** The domestic and external economic environment has generated low inflationary pressures. According to INSTAT data, annual inflation was 1.3% in January, up from the rate registered in December. Inflation fluctuations in the last two months have been determined mainly by the volatility in food prices. The fall in food inflation in December and its rise in January were driven by developments in international markets and the performance of domestic production. In parallel, the decline in oil prices has generated downward pressure on inflation. Prices of other consumer goods’ categories did not display any significant change. The rise in inflation in January was in line with our projections; however, the rate of inflation remains below Bank of Albania’s target. The Bank of Albania evaluates that inflationary pressures will increase gradually and inflation will return to target within the medium term.