Government debt: the margin-call deadline

WHO HOLDS GOVERNMENT DEBT? · Part 5

A portfolio built to finance pensions may have to find cash before eleven. Contracts, payment schedules and buffer replenishment then determine who can keep holding government debt.

On the evening of September 27, 2022, several asset managers warned the Bank of England that funds invested in British government debt were at risk of having negative net asset values. Some might have to begin winding up the next morning. The warning appears in the letter that Jon Cunliffe, then a deputy governor, sent to Parliament on October 5. His account describes an imminent threat reported by market participants and the overnight preparations for the intervention announced on September 28. ^[1]

British yields had risen sharply after the fiscal measures announced on September 23, against a backdrop of global monetary tightening. The speed of the move exposed vulnerabilities among investors reliant on short-term financing. ^[2]

These funds helped pension schemes manage their promises to retirees. They held government bonds, used derivatives and borrowed against securities. Earlier instalments followed the auction, dealers’ balance sheets, leveraged buyers and the collateral chain. That evening, its commitments converged on a deadline far closer than any pension payment: additional resources had to arrive before positions could be closed under the contracts.

A portfolio’s value, a pension scheme’s funding position and the cash available in an account are different measures. Higher interest rates can improve the relationship between a scheme’s assets and the discounted value of its future pensions while producing losses inside its investment vehicle and an immediate demand for collateral. The parliamentary investigation documented that coexistence, along with widely differing outcomes across schemes. ^[3]

A margin call turns the mismatch into an enforceable obligation. It specifies an amount, an acceptable form of payment or collateral, and a deadline. The bondholder must find an eligible asset, a lender or a buyer. Settlement schedules start to determine the fate of an investment intended to last for decades.

Buffers have grown since 2022. ^[17] Supervisory documents available in 2026 describe meaningful improvements in LDI resilience. They also expose a harder question: once investors have absorbed a shock, how quickly do they rebuild their reserves, and which markets receive the resulting sell orders? ^[12][18]

Two balance sheets, one rate shock

A British defined benefit pension scheme promises payments under established rules. To assess those commitments, it converts future payments into a present value using a discount rate. When that rate rises, the measured liability can fall substantially. Members remain entitled to their promised pensions under the scheme’s terms; the financial valuation of that promise changes. ^[3][8]

Liability-driven investment, or LDI, arranges investments around those obligations. Exposure to long-dated bonds and inflation helps assets move more closely with liabilities. Some arrangements use borrowing or derivatives to obtain that exposure with only part of the scheme’s capital, leaving resources invested elsewhere. Those instruments introduce collateral requirements that can change quickly. ^[8][9]

Consider a fictional scheme with £1 billion of assets and £1 billion of discounted pension liabilities. Following a rate shock, assume that assets are worth £900 million and liabilities £800 million. Its funding ratio rises from 100% to 112.5%. Assets have lost £100 million, but the measured liability has fallen by £200 million. These are illustrative assumptions, not estimates for an actual scheme or a calibration of its interest-rate sensitivity.

The £100 million funding surplus produced by that calculation sends no money to the scheme’s bank account. Some investments have genuinely lost value. The LDI manager may have to pay cash to derivatives counterparties or increase the collateral supporting a loan. To recapitalise the investment vehicle, the scheme must mobilise resources held in another part of its portfolio.

The separation matters especially when several schemes invest in a pooled LDI fund. The vehicle has its own assets, contracts and net asset value. Its investors’ other resources sit elsewhere, subject to their own decision-making procedures. An improvement in the overall funding of pensions cannot prevent a particular investment fund from exhausting its equity. Cunliffe’s letter explicitly reports the threat of negative net asset values. Describing the entire crisis as a delayed bank transfer would erase that solvency risk. ^[1]

Interest-rate hedging serves a genuine economic purpose. It can protect a scheme from a sharp increase in its deficit when yields fall. The hedge’s durability depends on the capacity to live through the opposite move. Choosing a hedge therefore also means choosing a treasury arrangement: accessible assets, delegated authority and agreements that can be executed within counterparties’ deadlines.

Collateral demanded by counterparties

Several different demands can fall under the everyday label of a margin call. Their functions and accounting treatment differ.

Variation margin follows changes in a position’s market value. A loss on a derivative triggers a transfer that settles or collateralises the resulting exposure, depending on the contract’s legal structure. In central clearing, a clearing house stands between its members and organises those payments. LCH Ltd specifies that variation margin must be provided in cash in the currency of the underlying exposure. ^[6][7]

Initial margin covers potential losses over the time needed to manage a default and close or replace positions. It may increase as the risk model, volatility or portfolio changes. Additional initial margin therefore cannot be treated in full as a loss already incurred. It provides resources available under the relevant default arrangements. International work on transparency addresses, among other things, how participants can anticipate changes in those requirements. ^[5]

A repo, the secured financing arrangement examined in the previous instalment, provides a third source of calls. In a separate example, £100 million of securities supports a £98 million loan. Here the 2% haircut is measured against the collateral’s market value. If the securities fall to £95 million while the haircut stays unchanged, they support only £93.1 million of borrowing. Restoring the original protection requires a £4.9 million loan repayment, or £5 million of additional eligible securities. Interest and other costs are excluded. ^[16]

A price decline can therefore trigger a demand for resources without any increase in the haircut percentage. A higher haircut would add to the requirement, provided the contract permits the change or the lender imposes it on a new transaction. Our example does not invent a right to rewrite an existing fixed-term loan at will.

The manager must match each demand with its recipient. Securities may qualify for one collateral obligation but be unusable for a cash payment. A receivable from one counterparty cannot automatically extinguish a payable to another. Netting requires a legal basis and an operational mechanism. A consolidated spreadsheet supplies neither.

At eleven, the shortfall is fourteen million

Now construct a fictional trading day, independent of the repo example. An investor must provide £12 million of variation margin, £4 million of additional initial margin and a £6 million cash adjustment on a repo by 11 a.m. The three commitments are separate and cannot be netted against one another. The total requirement is £22 million.

At 8 a.m., the investor has £3 million of unencumbered cash. A committed credit line delivers £5 million at 10 a.m. The investor also expects an £8 million variation-margin receipt on another position at 3 p.m., followed by £6 million from a money-market fund redemption at 9 a.m. on the next business day. These times and amounts are assumptions, not records from an identified manager.

Across the whole period, resources do add up to £22 million. Only £8 million is available at the 11 a.m. deadline. The shortfall is £14 million. A treasury forecast must identify the largest gap at each deadline, rather than rely on a reassuring balance at the end of the following day.

The diagram shows a bridge-financing requirement. It assumes neither an unauthorised overdraft nor a clearing house willing to overlook a late payment. At 3 p.m., the £8 million receipt would reduce the outstanding bridge to £6 million. The final receipt would then repay that bridge, excluding interest. The initial £5 million credit line would remain drawn under its own terms. In the meantime, the investor must secure that bridge or adjust positions early enough to meet its obligations.

Faster incoming payments would change the outcome. Bringing the £8 million receipt forward to before 11 a.m. reduces the peak requirement to £6 million. In another variant, using already available, eligible securities to cover the £4 million initial-margin increase reduces the cash gap to £10 million. Combining both changes leaves £2 million to finance. Each improvement requires enforceable rights and accessible assets; the scenarios do not assume that every market infrastructure offers those options.

In the first variant, the underlying economic gain or loss is unchanged. Earlier payment does not alter the gain that generated the receivable. It does, however, reduce reliance on a very short-term lender. That is the calendar’s distinct contribution. It becomes particularly valuable when many investors seek cash simultaneously.

From the losing position to the winning one

The interval between outgoing and incoming payments also exists within market infrastructure. In their final report of January 15, 2025, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) state that 32% of responding clearing houses pass variation margin through in the same payment cycle and currency, under the survey’s specific definition. The overall sample comprises 28 clearing houses, seven clearing members and three clients. The percentage counts respondents; it is not weighted by the money they handle. ^[7]

That observation makes the mismatch in our fictional day plausible. It does not identify those hours as the schedule of a particular clearing house. The report is also a dated piece of evidence, rather than a survey refreshed in October 2026. An improvement at the first stage may fail to reach the next: a clearing member’s arrangements with its client have their own rules.

LCH Ltd’s operational page shows the other side of the timetable. The bank operating through its Protected Payments System must confirm an intraday call within one hour of receiving the instruction. This is a requirement for the payment bank’s confirmation. Presenting it as a uniform deadline imposed on every underlying pension fund would collapse several distinct layers into one. ^[6]

Short deadlines have a purpose. A counterparty that allows losses to accumulate without additional resources increases its default exposure. Immediate collection protects a clearing house’s members against that risk. The Financial Stability Board’s focus on investors’ preparedness reflects the need for credit protection and liquidity resources to work together. ^[4]

Tracing the timetable also prevents two mistakes. Margin collected is not automatically revenue for a bank or a clearing house. Depending on its nature, it settles an exposure or secures an obligation. Equally, the existence of an economic winner on the other side of a price move does not mean that cash has instantly reached the participant who needs to make a payment elsewhere.

The process can improve while retaining its protections: more predictable schedules, coherent payment agreements and collateral prepared in advance. Any optimisation must preserve settlement certainty and respect the relevant currencies, accounts and legal rights. Additional time granted to one participant prolongs another’s exposure. That trade-off deserves explicit measurement rather than disappearing inside a daily average liquidity figure.

The sales of 2022 leave a measurable trail

The Bank of England’s Financial Stability Report, published on December 13, 2022, estimates that LDI funds and pension schemes faced more than £70 billion in margin and collateral calls during the crisis. Between September 23 and October 14, gilt sales amounted to roughly £23 billion by LDI funds and £14 billion by defined benefit schemes. Other asset sales and existing cash buffers also contributed resources. ^[2]

Those three numbers are not a complete funding reconciliation. Calls can require different forms of collateral; the sales measure transactions in a particular category of securities. The statistics aggregate participants and operations for which this investigation has no individual account records. Subtracting 23 and 14 from 70 to announce a residual “cash hole” would produce a number without a defensible definition. The lower bound of “more than 70” already rules out that apparent precision.

The transmission mechanism is nevertheless documented. Falling prices increase collateral demands. Funds sell long-dated bonds to reduce leverage or obtain resources. Their sales meet an already impaired market. The same asset is an investment, collateral and a source of liquidity. When many holders try to sell it, those three uses come under pressure together. ^[2][9]

Pension outcomes also depend on when hedges are reduced. A scheme that loses its protection against rate movements can become more vulnerable if the market subsequently reverses. The parliamentary report examines those difficulties while recording an aggregate improvement in pension funding. Market losses, transaction costs and changes in the valuation of pension obligations therefore need to be assessed separately. ^[3]

The 2022 episode shows how a long-term strategy can turn into a succession of very short-term decisions. A pension payable in twenty years creates no additional cash transfer that morning. The contract used to hedge its interest-rate risk may require resources during the trading session. That asymmetry can turn a holder of government debt into an urgent seller.

Stronger reserves and settlement deadlines

The authorities made concrete changes after the crisis. Guidance published by The Pensions Regulator on April 24, 2023 separates an operational buffer from a market-stress buffer. In the framework described, the latter should absorb at least a 250-basis-point move in yields, equivalent to 2.5 percentage points, on top of the operational element. The minimum assumes that further resources can arrive within five days; a slower process may require greater protection. The guidance also allows a lower market-stress buffer where the fund’s composition is intrinsically less volatile than a gilt-related LDI fund; the 250-basis-point level must therefore be read with its conditions. ^[8][10]

The measure expresses resilience to a rate shock. It therefore depends on portfolio sensitivity, leverage and assets that can actually be mobilised. Reading “250 basis points” as “2.5% of the portfolio in cash” would change the meaning of the requirement. A very long-dated bond’s price can move far more, in percentage terms, than its yield moves in percentage points.

The FCA also asked managers to review their preparation and communication with clients. The practical arrangements matter alongside the headline amount: authority to sell, a fund’s notice period, the route an instruction takes and final settlement. A pooled vehicle’s procedures have to function while several investors and service providers may be responding to demands at the same time. ^[9]

In May 2026, The Pensions Regulator further clarified that an investment classed as highly liquid must be accessible within five working days, including notice and settlement, under the conditions set out in its statement. This helps classify a scheme’s resources. It does not extend an intraday contractual deadline. Immediately available reserves must bridge the two horizons. ^[13]

The strongest counterargument to a narrative of permanent crisis comes from the authorities themselves. In the record published on April 1, 2026, covering its March 27 meeting, the Bank of England’s Financial Policy Committee described LDI as resilient amid the pressures then being observed. It pointed to larger buffers and improved operational preparedness. That dated assessment makes it untenable to portray the sector as unchanged since 2022. ^[12]

A Central Bank of Ireland study provides another conditional test. Using September 2025 balance sheets, a hypothetical 150-basis-point shock generates roughly £9 billion of gross liquidity needs, with less than £1 billion remaining after available resources are used. The calculation assumes, notably, that unencumbered gilts can meet collateral calls. Its conclusion depends on that access. The publication date could not be established from the accessible page, checked on October 12, 2026. ^[18]

The next wave begins when reserves are rebuilt

A larger buffer helps an investor absorb the first shock. Replenishment creates the next decision. A manager may have met immediate obligations but now judge its remaining headroom too small for another difficult session. It starts restoring that headroom while neighbouring institutions make the same calculation.

The Bank of England’s System-Wide Exploratory Scenario (SWES) exercise, published on November 29, 2024, traces this sequence. The severe, hypothetical scenario generates £94 billion in margin calls for non-bank financial institutions. LDI funds seek £16.5 billion of recapitalisation from pension investors. Redemptions by those investors lead corporate bond funds to sell around £7 billion of assets, mostly corporate bonds. ^[11]

The £94 billion measures margin demand across a broad set of sectors. The £16.5 billion measures capital sought from investors. The £7 billion measures asset disposals further along the chain. Adding them would treat different stages of a transmission mechanism as a single bill. The exercise models behaviour and scales it to the system; it does not report sales observed in November 2024.

The link is economically significant. Rebuilding the reserve behind a government-bond hedge can require a pension scheme to sell investments exposed to corporate credit. A need for protection originating in one market moves into another. An analysis ending at the LDI portfolio could conclude that its buffer worked while missing this second wave of adjustment.

The Bank also identifies behaviours that soften the pressure, including countercyclical purchases by some insurers. The exercise therefore has no mechanically predetermined outcome. It highlights a dependency: one sector’s ability to restore liquidity partly relies on other participants’ willingness and capacity to buy what it sells. ^[11]

The speed of replenishment becomes a difficult collective choice. Rebuilding too quickly can force sales into a weakened market. Waiting too long leaves less protection against another shock. The appropriate balance depends on losses already sustained, funding conditions and confidence in counterparties. A single buffer percentage cannot settle that question of timing.

A long-term investment with short-term deadlines

The regulatory response increasingly addresses this operational reality. The FSB’s December 2024 recommendations cover funding plans, extreme scenarios and the ability to mobilise collateral in the right place. On May 6, 2026, CPMI and IOSCO also opened a consultation on information and tools surrounding initial margin. Responses were due on June 30, 2026. As of October 12, no subsequent final publication has been identified in the sources reviewed, so the text is treated here as a proposal. ^[4][14]

A useful buffer must be available for use during the shock. It also needs to be assessed against obligations that can draw on it simultaneously. In our fictional day, reporting £22 million of resources without their arrival times concealed a peak requirement of £14 million. A stress test that models prices but omits settlement times can miss the decision that produces a sale.

The credit line requires the same discipline. Our example assumed a dependable £5 million payment at 10 a.m. An approval still to be negotiated, a lender free to refuse or collateral already pledged elsewhere would immediately change the result. The price of genuine availability compensates the lender for that commitment. The bank providing it must, in turn, finance its own obligations. The collateral chain from the previous episode reappears behind the margin call.

The British Financial Policy Committee’s September 2026 record keeps leverage and core markets on its watch list. The documents reviewed here do not establish a repeat of 2022. They show stronger protection, persistent timing constraints and potential transmission channels that system-wide exercises are beginning to map. ^[15]

Holding government debt also means remaining funded until the next collateral settlement. The bond’s final maturity may be distant; the decision to keep it can be renewed several times during a trading day. The next instalment follows the other end of that decision: how sales reach the market, who absorbs them, and how they affect the price at which a government can borrow.

Method and scope

This instalment draws on letters, reports, operational guidance and supervisory research checked on October 12, 2026. The three l0g simulations, expressed in sterling, are independent: a pension balance sheet, a repo adjustment and a cash-flow timetable. Their calculations are explained in the article. The 2022 estimates, the clearing-house survey and the stress exercises are separately labelled. No interview, private intraday account record or executed fund contract is claimed to have been obtained. The sources below provide full URLs and references for tracing each observation. The discussion concerns market mechanisms and does not equate funded British pensions with France’s pay-as-you-go pension system.

Simulation calculations

For the fictional scheme, 900 / 800 × 100 = 112.5%; 900 - 800 = £100 million of funding surplus. For the repo, 95 × (1 - 0.02) = £93.1 million of capacity and 98 - 93.1 = £4.9 million to repay. The alternative retains the loan: 95 + 5 = £100 million of securities, supporting 100 × 0.98 = £98 million. These solutions are alternatives.

In the fictional trading day, calls total 12 + 4 + 6 = £22 million. By eleven, 3 + 5 = £8 million has arrived, leaving a bridge requirement of 22 - 8 = £14 million. Bringing forward the £8 million receipt reduces the requirement to 22 - 16 = £6 million; separately posting free securities for the £4 million initial-margin increase reduces it to 18 - 8 = £10 million. Combining both changes gives 18 - 16 = £2 million. They require additional eligible assets and effective legal rights, without reusing an already committed resource.

The next episode follows forced bond sales into sovereign borrowing costs and their gradual transmission to public budgets.

Sources and reading references

1. Bank of England · Letter from Jon Cunliffe to Mel StridePublished: October 5, 2022. Period / scope: Events of September 23–28, 2022; letter dated October 5.https://www.bankofengland.co.uk/-/media/boe/files/letter/2022/october/letter-from-jon-cunliffe-ldi-5-october-2022.pdf
2. Bank of England · Financial Stability Report – December 2022Published: December 13, 2022. Period / scope: September 23–October 14, 2022; historical estimates, section 5.2.https://www.bankofengland.co.uk/financial-stability-report/2022/december-2022
3. House of Commons, Work and Pensions Committee · Defined benefit pensions with liability driven investments, HC 826Published: June 23, 2023. Period / scope: 2022 crisis and evidence available in 2023; chapter 3, paragraphs 48–65.https://publications.parliament.uk/pa/cm5803/cmselect/cmworpen/826/report.html
4. Financial Stability Board · Liquidity Preparedness for Margin and Collateral Calls: Final ReportPublished: December 10, 2024. Period / scope: International recommendations for non-bank liquidity preparedness; recommendations 1–8.https://www.fsb.org/uploads/P101224-1.pdf
5. BCBS, CPMI, IOSCO · Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposalsPublished: January 15, 2025. Period / scope: Centrally cleared initial margin; review and policy proposals.https://www.bis.org/publications/transparency-and-responsiveness-initial-margin-centrally-cleared-markets-review-and-policy-proposals
6. LCH / LSEG · LCH Ltd acceptable cashPublication: exact date not established, Staff Insight No. 9 of 2026. Period / scope: Live operational page accessed October 11, 2026; intraday bank confirmation and acceptable cash.https://www.lseg.com/en/post-trade/clearing/collateral-management/ltd-collateral-management/ltd-acceptable-collateral/ltd-acceptable-cash
7. CPMI–IOSCO · Streamlining variation margin in centrally cleared markets – examples of effective practicesPublished: January 15, 2025. Period / scope: Survey supporting the January 2025 final report; printed pages 7 and 12–14.https://www.bis.org/publications/streamlining-variation-margin-centrally-cleared-markets-examples-effective-practices-final-report.pdf
8. The Pensions Regulator · Using leveraged liability-driven investmentPublished: April 24, 2023. Period / scope: Post-crisis guidance for trustees using leveraged LDI; collateral resilience and governance.https://www.thepensionsregulator.gov.uk/en/document-library/scheme-management-detailed-guidance/funding-and-investment-detailed-guidance/liability-driven-investment
9. Financial Conduct Authority · Further guidance on enhancing resilience in Liability Driven InvestmentPublished: April 24, 2023. Period / scope: Review of 2022 and expectations for managers; sections 3.1 and 3.2.https://www.fca.org.uk/publications/multi-firm-reviews/further-guidance-enhancing-resilience-liability-driven-investment
10. Bank of England · Bank staff paper: LDI minimum resiliencePublished: March 29, 2023. Period / scope: Post-2022 resilience calibration and usable buffers.https://www.bankofengland.co.uk/financial-policy-summary-and-record/2023/bank-staff-paper-ldi-minimum-resilience
11. Bank of England · The Bank of England’s system-wide exploratory scenario exercise final reportPublished: November 29, 2024. Period / scope: Hypothetical two-week system-wide stress scenario; results scaled to sectors.https://www.bankofengland.co.uk/financial-stability/boe-system-wide-exploratory-scenario-exercise/boe-swes-exercise-final-report
12. Bank of England, FPC · Financial Policy Committee Record – April 2026Published: April 1, 2026. Period / scope: Meeting held March 27, 2026; paragraph 18.https://www.bankofengland.co.uk/financial-policy-committee-record/2026/april-2026
13. The Pensions Regulator · Annual Funding Statement 2026Published: May 6, 2026. Period / scope: 2026 guidance; annex 3, LIQ 1.0. Liquidity availability includes notice and settlement.https://www.thepensionsregulator.gov.uk/en/document-library/statements/annual-funding-statement-2026
14. CPMI–IOSCO · Consultation on updated guidance and public disclosures to implement initial margin proposalsPublished: May 6, 2026. Period / scope: Consultation opened May 6, 2026; responses due June 30, 2026. Not treated here as a final rule.https://www.bis.org/publications/cpmi-iosco-consultation-updated-guidance-and-public-disclosures-implement-initial-margin-proposals
15. Bank of England, FPC · Financial Policy Committee Record – September 2026Published: September 30, 2026. Period / scope: Meeting held September 25, 2026; market-based finance and gilt repo.https://www.bankofengland.co.uk/financial-policy-committee-record/2026/september-2026
16. Federal Reserve · Proportionate Margining for Repo TransactionsPublished: February 14, 2025. Period / scope: Research note on repo margin; the article’s numerical example is independently hypothetical.https://www.federalreserve.gov/econres/notes/feds-notes/proportionate-margining-for-repo-transactions-20250214.html
17. Bank of England · Enhancing the resilience of the gilt repo marketPublished: September 4, 2025. Period / scope: September 2025 discussion paper on gilt repo resilience.https://www.bankofengland.co.uk/paper/2025/discussion-paper/enhancing-the-resilience-of-the-gilt-repo-market
18. Central Bank of Ireland · An Update on the Size and Resilience of the Irish GBP LDI Fund CohortPublication: exact date not established, Staff Insight No. 9 of 2026. Period / scope: Liquidity simulation on September 2025 balance sheets; other charts run to April 2026. Section 2.https://www.centralbank.ie/publication/research-publications/staff-insights/an-update-on-the-size-and-resilience-of-the-irish-gbp-ldi-fund-cohort