Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 20, 2023 erstellt
Beschreibung:
Pension funds are increasingly relying on swaps to hedge the long-term nature of their liabilities. While the use of swaps reduces pension funds' exposure to interest rate risk, it exposes pension funds to liquidity risk because of potential margin calls. We study these effects using unique data for the Dutch pension system and show that hedging behavior exposes pension funds to margin call risk that can be as large as 7-19% of total assets under management. When interest rates hike and this risk materializes, pension funds liquidate parts of their fixed income portfolios, primarily selling safe government bonds. This procyclical selling behavior has an adverse impact on bond prices