11 Dec 2023 3 min read

LDI chart update: What’s been driving the recent fall in yields?

By Robert Pace , Anne-Marie Morris (née Cunnold)

November was an eventful month in LDI markets, with a reversal in the one-way traffic of rising yields. Here are some of the key themes we see behind this.


The chart above highlights November’s significant decline in yields, which followed our reflections in October and also early November on whether rates might have peaked for this cycle.

Here are the key drivers we see behind this move:

Weaker than expected data: both US and UK economic data readings have been weaker than expected, most notably US non-farm payrolls, US and UK inflation, and UK retail sales. Given the significance of these data points, the market read weakness as a sign that rate hikes were indeed slowing the economy, reducing the need for further hikes; hence the repricing lower of yields.

Central bank dovishness: at the US Federal Reserve press conference on 1 November, Jerome Powell came across relatively dovish. This came alongside a surprise refunding announcement by the US Treasury whereby its issuance will be skewed more to bills than long-end issuance. In addition, the Bank of England’s Chief Economist Huw Pill commented that it was not “unreasonable” to expect a rate cut in the middle of next year, resulting in a significant gilt market rally.

Potentially attractive UK yields: we understand there has been some flow out of US credit assets into gilts as UK yield levels are viewed as increasingly attractive in the eyes of many investors. Likewise, it is not unreasonable to assume there has been a pick-up in activity as investors aim to sort any hedging needs before the end of the year at what we believe to be potentially attractive yields.

Expected reduction in gilt financing: in the lead-up to the Autumn statement, consensus was for gilt issuance to be revised down. As a result, markets began pricing this reduced supply story, hence we saw yields fall primarily at the long end, flattening the yield curve.  

Autumn Statement surprise

However, following the Autumn Statement, we now know that the expected reduction in gilt supply not come to fruition and as a result yields rose modestly afterwards. In addition, the longer-term projections were also additive in terms of future supply. The table and chart below give a little more detail on this.


Source: LGIM, DMO, BoE 22 November 2023.

 Stay tuned for more regular LDI chart updates on the LGIM Blog in 2024.



Robert Pace

Senior Solutions Strategist

Robert works with clients on LDI and broader solutions-based investment strategy. His three Rs are rates, regulation and arithmetic (showing a maths degree lives on forever). When Robert is not pondering LDI or investment strategy and talking to clients, he can often be found cycling in the Surrey Hills or watching hours of cycling coverage on Eurosport (at 30x speed in order to prolong his marriage).

Robert Pace

Anne-Marie Morris (née Cunnold)

Head of DB Solutions Strategy

Anne-Marie leads the team responsible for the strategy of objective-driven investment solutions, principally for Defined Benefit Pension Scheme clients. In partnership with the Solutions Portfolio Management team, her team structures and delivers strategies across LGIM’s derivative overlay, LDI and CDI strategies including Buy and Maintain credit. Anne-Marie joined LGIM in 2012, bringing industry experience from prior roles including investment strategy at BlackRock and senior fund manager in structured investments and solutions at Close Brothers Asset Management. Anne-Marie is a CFA charterholder, holds the Financial Derivatives paper from the CISI diploma and graduated from Cambridge University with a first class honours degree in Natural Sciences (theoretical physics). When not eulogising about derivatives and LDI, Anne-Marie might be found exploring historic buildings with her two boys.

Anne-Marie Morris (née Cunnold)