Reuters. The UK’s bond market crisis is entering a messy second act. The Bank of England announced a 65 billion pound gilt-buying scheme to stabilise markets and rescue pension funds. But the fallout from the crisis means those same funds, with 1.7 trillion pounds of assets, now need to reduce risk by selling corporate bonds and other higher-yielding assets.

BoE Governor Andrew Bailey stepped in to save pension plans that use so-called liability driven investment strategies (LDIs). These funds, managed by the likes of Legal & General (LGEN.L) or BlackRock, allow pension plans to match payments to retirees with similar long-dated assets, like 20-year gilts. They used derivatives and leverage to juice up returns, but that left them facing margin calls from bank counterparties when UK Prime Minister Liz Truss’ unfunded spending plans caused bond prices to collapse.

The central bank’s intervention helped the funds avoid having to sell gilts at fire-sale prices to meet collateral demands. But LDI investors are not out of the woods. Bailey’s move may have been too late to stop some pension funds from having to close out their hedges, like interest rate swaps or futures. That leaves them with a potential balance sheet mismatch because they no longer have the derivatives in place to match their liabilities.

That could be a big problem when gilt yields fall, as they have since Bailey’s intervention. The rate at which retirement payments are discounted will also fall, pushing up the pension fund’s future liabilities, but without a corresponding asset gain. To avoid that mismatch, the pension fund may be under pressure to buy more long-dated assets, like gilts. To do that, they need to sell other securities like corporate bonds, property or equities.