Bank of England Loosens Hedge Fund Lending Rules as Gilt Risks Rise in £2 Trillion Market
Updated
Updated · Bloomberg · Jul 9
Bank of England Loosens Hedge Fund Lending Rules as Gilt Risks Rise in £2 Trillion Market
3 articles · Updated · Bloomberg · Jul 9
Summary
The Bank of England plans to ease rules so banks can extend more credit to hedge funds, even as concerns grow that leveraged trades could destabilize UK government bonds.
Those risks are rising because hedge fund borrowing is surging and some large funds are simultaneously betting on the AI boom and sovereign debt, increasing the chance that losses in one market spill into another.
Gilts sit at the center of the concern: they underpin borrowing costs across the British economy but remain vulnerable to volatile cross-border flows because the market is relatively small and sterling lacks a dominant global role.
The BOE’s logic is that hedge fund risks are best managed in markets rather than through tighter bank-lending curbs, provided it strengthens other defenses against hedge fund-driven shocks in the gilt market.