Pension funds are being asked to put up additional cash to cover hedging positions as government bond markets face renewed turmoil. The sell-off in British government bonds, known as gilts, has been driven by global market instability linked to the war in Iran, pushing ten-year gilt yields above 5.1 per cent.

Rising yields, which move higher as bond prices fall, have reduced the value of assets used by pension funds as collateral in liability driven investment strategies. As collateral values drop, some funds have received cash calls to cover shortfalls. Industry consultants said only a small number of funds have been affected so far and described market conditions as orderly, though further yield increases could trigger more capital demands.

The situation has revived uncomfortable comparisons with the 2022 bond market crisis that followed the mini-Budget under former prime minister Liz Truss, when rapid yield rises forced widespread asset sales and prompted intervention by the Bank of England. Although the current sell-off has been less sudden and reforms have reduced risks in liability driven investment strategies, yields are now higher than during that earlier crisis.

The renewed pressure on pension funds could prove politically sensitive for Chancellor Rachel Reeves, as markets closely watch the government’s handling of the economy amid ongoing global uncertainty.