Gilt-repo fragility: the crisis backstop excludes the market's marginal player

The Bank of England's Contingent NBFI Repo Facility, open to applications since January 2025, covers only insurers, pension funds and LDI funds holding £2bn or more of gilts. Hedge funds, now about 30 per cent of gilt trading volumes and dominant in cash-futures basis trades financed by repo, are excluded. Minimum repo haircuts floated in the Bank's 2025 gilt-repo resilience discussion paper, with feedback published in 2026, have not been mandated. No regularly published dashboard of NBFI gilt leverage exists, leaving Parliament and market participants reliant on ad hoc FPC commentary.

The 2022 LDI spiral cost the Bank a £19bn emergency intervention and nearly toppled pension funds. The same dynamic of leveraged forced sellers with no backstop now sits with hedge funds, in a market that must absorb record issuance plus £70bn a year of QT supply.

A phase-two extension of the repo facility to broader non-banks with conditionality, resilience standards in exchange for access, mandatory minimum haircuts on gilt repo, and a quarterly public dashboard of non-bank gilt leverage from the Bank and FCA.

// State-led: Instrument: Bank of England CNRF extension, FPC-mandated repo haircuts, Bank/FCA leverage dashboard from supervisory data.

The 2022 forced-seller dynamic has migrated to excluded hedge funds, and the Bank already owns the backstop and is actively consulting, which narrows the external gap.