Bank of England Deputy Governor Warns Hedge Funds Raise Bond Risks

Bank of England Deputy Governor for Financial Stability Sarah Breeden warned Thursday that hedge funds’ expanding role in government bonds may make localized market stress more likely to spread to other markets. She spoke in Bangkok during the annual meetings of the International Monetary Fund and World Bank. She described a years-long shift in core government bond markets: insurers and pension funds now make up less of the investor mix, while hedge funds that respond to price moves and operate internationally have become more prominent. “The likelihood of a shock in one market transmitting to another is greater than what it was,” Breeden said. She said the changing investor mix raises the chance that turbulence in one market will spill into others.

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