Key Takeaways
- • AIMA, the hedge fund industry body, has warned the Bank of England that proposed reforms to the UK gilt repo market could reduce liquidity and raise volatility during periods of market stress (Reuters, October 7, 2026).
- • The BoE is considering changes including central clearing of gilt repo transactions, which AIMA argues could leave investors more exposed to volatility.
- • The warning comes as a global bond selloff has pushed UK borrowing costs higher, with 30-year gilt yields reaching their highest level since 1998.
- • The BoE has separately flagged growing systemic risks from hedge fund basis trades and elevated leverage in UK government debt.
- • The UK gilt repo market, cited at roughly £200bn, is central to hedge fund funding and liquidity, making the outcome of the consultation material for leveraged fixed-income strategies.
Summary
A hedge fund industry group has warned the Bank of England that proposed reforms to the UK gilt repo market could reduce liquidity and increase volatility during periods of market stress, according to Reuters. The industry body AIMA argues that the changes under consideration could leave investors more exposed to price swings at precisely the moments when market functioning matters most. The BoE's proposals include central clearing of gilt repo transactions, among other measures aimed at limiting risk-taking by UK bond traders.
The timing of the intervention is notable. The objections arrive as a global bond selloff has pushed borrowing costs higher, with 30-year UK gilt yields rising to their highest level since 1998. Reports describe the reforms as a response to the growing role of leveraged fixed-income positioning in UK government debt, a market roughly valued at £200bn in the repo segment.
The regulatory backdrop is also shaped by the BoE's own warnings. The central bank has flagged growing risks from the hedge fund basis trade, a profitable fixed-income strategy that exploits price differences between cash bonds and futures, and from elevated leverage positions in UK government debt. Industry participants contend that reforms intended to curb these risks could, however, impair the liquidity that allows such strategies, and the wider gilt market, to function in stress.
Coverage of the story, including reports from Investing.com, frames the debate as a trade-off between financial stability and market depth. Full details of AIMA's submission and the BoE's response timetable were not available in the sources reviewed.
The timing of the intervention is notable. The objections arrive as a global bond selloff has pushed borrowing costs higher, with 30-year UK gilt yields rising to their highest level since 1998. Reports describe the reforms as a response to the growing role of leveraged fixed-income positioning in UK government debt, a market roughly valued at £200bn in the repo segment.
The regulatory backdrop is also shaped by the BoE's own warnings. The central bank has flagged growing risks from the hedge fund basis trade, a profitable fixed-income strategy that exploits price differences between cash bonds and futures, and from elevated leverage positions in UK government debt. Industry participants contend that reforms intended to curb these risks could, however, impair the liquidity that allows such strategies, and the wider gilt market, to function in stress.
Coverage of the story, including reports from Investing.com, frames the debate as a trade-off between financial stability and market depth. Full details of AIMA's submission and the BoE's response timetable were not available in the sources reviewed.
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