Source: Wall Street news should be based on you.

"this is a global margin call. I hope we survive. "

In many countries in Europe and America, millions of workers and retirees rely on pensions set up by companies and governments to protect their retirement. These people believe that they have been "promised" certain interests by the government, and that these "promises" will be kept.

Unfortunately, many pensions are grossly underfunded, that is, there are not enough funds set aside to pay "promised" benefits. In addition, the funds in these pensions are often grossly mismanaged.

Last week, the UK government announced a massive tax cut plan, which led to a loss of confidence in UK assets and an epic sell-off in gilts, leaving pension funds facing unprecedented margin calls and the need to sell bonds aggressively in exchange for cash. and that could trigger a full-blown bond market crash. The storm was temporarily calmed down when the Bank of England announced its "unlimited" bond-buying program.

In fact, with the exception of the UK, the collapse of bond markets in several developed countries may be imminent.

American pensions are already in grave danger

Edward Siedle, a pension forensic expert, wrote in the article "UK Pension Fund Near-Collapse Is A Warning For America's Pensions" ("the British pension fund is on the verge of collapse is a warning to US pensions") that, although different from the UK, the US also has "toxic substances" that affect its pensions:

The current woes of the US corporate bond market and the debt-to-corporate value ratio are higher than they expected, Oleg Melentyev and Eric Yu of Bank of America Corporation's high-yield bond strategy team wrote in the latest report.The credit stress indicators compiled by the bank have currently been pushed to the "critical zone":

So far, US pension funds and insurers have not faced the same margin calls, but they are still likely to suffer huge losses. Because if the value of the underlying asset falls sharply enough, the forced sell-off will begin sooner or later.

Stocks and bonds, the largest components of the pension portfolio, fell by about 20 per cent during 2022. As interest rates fell, pension funds turned to commercial real estate, but the market capitalization of commercial real estate investment companies on the u.s. stock market fell 35%, in line with the Nasdaq index.

The risk index of German bunds is higher than that of the 2008 financial crisis.

Last week, Goldman Sachs Group saidThe German government bond market risk indicator, the spread between German government bonds and interest rate swaps, rose to higher levels than it was during the 2008 world financial crisis.At the same time, the cost of hedging German bunds with interest rate options rose to an all-time high.

Goldman Sachs Group said that the real yield, that is,Yields on inflation-linked government bonds fell to negative values in Germany and the UK, followed by the US market.This puts insurers and pension funds in trouble. Pension funds invest in pension payments and insurance premiums to provide future income.

As compensation, European and British institutions lock in long-term interest rates through derivative contracts or interest rate swaps, that is, paying short-term interest rates while receiving long-term interest rates. A swap is a leveraged position that requires collateral worth only a fraction of the nominal value of a value contract.

When the Fed raised interest rates at the end of 2021, the price of swaps that paid fixed rates and accepted floating rates plummeted. The spread between pension funds and insurance companies on long-term government bonds is equivalent to 10:1The price of long-term G7 government bonds fell nearly 20 per cent and the value of derivatives contracts evaporated.

Goldman Sachs Group then quoted a summary of recent events by the portfolio manager of one of Germany's largest insurance companies: