Bank of England begins bond market stress test

Part of system-wide exploratory scenario

The Bank of England has asked a group of more than 50 financial institutions to model the impact of a sharp rise in corporate and sovereign bond yields.

The "system-wide exploratory scenario" (SWES) will combine elements of the shocks observed following both the LDI crisis that arose from the Mini Budget and the ‘dash for cash' at the beginning of the Covid-19 pandemic. The SWES will model a ten-day scenario, with the first day witnessing yields on 10-year gilts increasing by about 45 basis points, exceeding the largest historical observations. Overall, the scenario will see a 1.15 percentage point increase in gilt yields, a 1.3 percentage point increase in investment-grade borrowing costs, and a 0.75 percentage point rise in US Treas...