Stay informed with free updates
Simply sign up to the Hedge funds myFT Digest — delivered directly to your inbox.
The Bank of England has warned markets could endure “a further sharp correction” even after the steep sell-off triggered by Donald Trump’s announcement of sweeping tariffs last week.
Officials at the central bank on Wednesday said “the probability of adverse events” had risen and the UK’s open economy was particularly exposed to the financial market turmoil stemming from Trump’s trade war.
“The global risk environment has deteriorated, and uncertainty has intensified . . . the probability of adverse events, and the potential severity of their impact, has risen,” the BoE’s Financial Policy Committee said after its quarterly meeting.
It added that “the risk of a further sharp correction being triggered had risen due to global developments” and that “a major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth”.
The comments came as stocks continued to trade lower on Wednesday, joined by government bonds led by a sell-off of US Treasuries.
The central bank warned that increased levels of government borrowing left the financial system vulnerable to “sharp increases in government bond yields” that “could crystallise relatively quickly, particularly if accompanied by rapid capital outflows”.
However, the BoE said that so far hedge funds had been able to cope with sharp falls in financial markets. Many de-risked their investment portfolios ahead of Trump’s April 2 tariffs announcement, according to the central bank.
“While the margin calls faced by funds following April 2 had been significant, they had so far been able to meet them without taking actions which would further amplify the market liquidity,” said the BoE.
This is a developing story
Source link
