Duncan Wood

Editorial director at Infopro Digital (Central Banking, FX Markets, Waters Technology)

[Duncan Wood @Duncan_Wood]

@ghose77 Thanks, Rupak. It's taken 36 years for Risk to crack a joke - we wanted to do it properly.

[Duncan Wood @Duncan_Wood]

Timely (unlocked!) reporting from https://t.co/Qxvd48Uh8W: "You’ve got to pick those derivatives up, and physically move them" ... https://t.co/iAllLn5s8y

[Risk.Net @RiskDotNet]

We investigate how banks have hit upon an ingenious way of shifting vast quantities of derivatives off balance sheet https://t.co/ls7XfL7wQX

[Duncan Wood @Duncan_Wood]

@Sold_Puts Not clear to me why it HASN'T developed. Do you know why? Eurex and LCH both offer some form of it, right?

[Duncan Wood @Duncan_Wood]

This week’s BoE intervention in the gilts market was not a shock. It was exactly what pension funds had warned would happen if their long-dated liability hedges were subject to cash margin requirements. Way back when, https://t.co/Qxvd48UOYu wrote about this stuff a LOT. Thread!

[Duncan Wood @Duncan_Wood]

@BlackRaven999 I guess you could try it. If the Fed had forced you into the trade in the first place, they might listen ...

[Duncan Wood @Duncan_Wood]

@BlackRaven999 I agree with the final point, but the issue was the speed of the move rather than its historical ranking - it meant pension funds had to come up with large amounts of cash in a matter of hours. They don't sit on piles of cash.

[Duncan Wood @Duncan_Wood]

@i_williamson1 @Frances_Coppola It was a widely held concern for quite a long time. I'm sure it's not completely fair to say that years of comatose rates lulled everyone into complacency ... but it does FEEL like that's what happened.

[Duncan Wood @Duncan_Wood]

@AlexWhite1812 Yes. I wish I knew. My impression is that most central banks wanted to avoid taking formal responsibility for liquidity provision here. But there are other buttons they could have pressed.

[Duncan Wood @Duncan_Wood]

@NovaMichigan The reporters on these pieces deserve all the credit - mostly departed Risk hands. But thanks on their behalf!

[Duncan Wood @Duncan_Wood]

@dsquareddigest I'll look out for that - thanks for flagging. Surely, though, it would still be a last-resort bailout? Part of the issue this week was that there were very few other valves/buffers. I'd be expecting BoE to press for a raft of market-led changes as well.

[Duncan Wood @Duncan_Wood]

@dsquareddigest Yes, I think that's fair. I do wonder how happy they'll be to do it again, though.

[Duncan Wood @Duncan_Wood]

@johndwilson See - I managed to get that one in there! Maybe it's time to dust it off. Lots of good P2P things going on elsewhere - in FX forwards, spot FX, inflation repacks ...

[Duncan Wood @Duncan_Wood]

@johndwilson @EurexGroup You're right, I did. In my defence, there were too many! As you know, this whole issue was thrashed out in great depth over a period of years ... and then punted into the long grass of 2022.

[Duncan Wood @Duncan_Wood]

@BlackRaven999 Wellll ... they're not, really. The facetious version of their argument is: "You're forcing us into a world where we have to margin high-DV01 exposures in cash. We don't hold lots of cash because it hurts returns. So if there's a huge dislocation, perhaps you could step in?"

[Duncan Wood @Duncan_Wood]

Given the chance to live its life over again, I wonder whether the BoE would now prefer an emergency intervention to buy bonds, or the earlier creation of a standing facility to lend cash. What do you think?

[Duncan Wood @Duncan_Wood]

Fixes mooted included clearing houses accepting non-cash VM, pension funds sourcing more of their duration needs from bonds rather than swaps, peer-to-peer repo facilities to avoid dealer bottlenecks – and that idea of the central bank backstopping the repo market in some form.