What if a gilt spike sets off a bigger UK pension LDI doom loop?
A gilt-yield spike forcing UK LDI funds to dump bonds for collateral is a self-feeding sovereign-bond doom loop — long-end gilts gap, sterling and risk wobble until the BoE backstops. This IS the September-2022 mini-budget LDI crisis, where 30y gilts moved ~120bp in days until the BoE's emergency bond-buying. Forward angle: pension buffers are larger post-2022, but the playbook (BoE intervention) is now priced — the tail is a backstop that arrives late or is constrained by inflation. Trade long gilts and GBP.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 6–18 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A gilt-yield spike forces UK pension LDI funds into forced bond sales to meet derivative collateral calls, echoing 2022 but larger. The trigger decomposes into signed root‑shocks — Fed policy path ▲ · Financial conditions ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.