BoE has right fix for faulty gilt-market plumbing

By Liam ProudThe Bank of England is pressing ahead with plans to limit hedge-fund leverage in a key funding market, the FT reported. So-called minimum repo haircuts of, say, 2% may reduce liquidity in normal times. But it would be worth it to reduce the odds of a disorderly crisis-era unwind.Full…

By Liam Proud

The Bank of England is pressing ahead with plans to limit hedge-fund leverage in a key funding market, the FT reported. So-called minimum repo haircuts of, say, 2% may reduce liquidity in normal times. But it would be worth it to reduce the odds of a disorderly crisis-era unwind.

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CONTEXT NEWS

The Bank of England will push ahead with plans to impose a minimum "haircut" on gilt repo, which is a form of borrowing used heavily by hedge funds.

A haircut reduces the percentage of a bond that lenders count as collateral, which means that a mandatory minimum haircut would effectively limit leverage in this key funding market.