SWNOVELXO 113
“Do you still have something to say?”
Two days later, at Yuseong Investment Securities.
Seo Yong-won asked with a stern expression as he looked at Park Hyun-jae, who had come to the Part Leader’s office.
Park Hyun-jae had always been a strong-willed person.
Until now, Seo Yong-won had thought his personality wouldn’t be a big problem since there hadn’t been any notable issues in the team. However, Park Hyun-jae’s recent behavior was showing all the flaws Seo Yong-won had worried about.
“The UK…”
“Assistant Manager Park Hyun-jae, I thought I told you we wouldn’t discuss the UK issue anymore.”
“But it seems like too good an opportunity to just let go.”
“In this situation? Are you still emotionally investing…”
“I’ve prepared some data.”
At Park Hyun-jae’s words, Seo Yong-won stopped mid-sentence and looked at him.
Until now, Park Hyun-jae had been insisting on investing in the UK based on his intuition.
His logic had been refuted by the data Dokyung prepared, and furthermore, the current situation was unfolding exactly as Dokyung’s data had predicted.
“Data, you say?”
“Yes.”
Park Hyun-jae placed the documents he was holding in front of Seo Yong-won.
Seo Yong-won alternated his gaze between Park Hyun-jae and the documents, then sighed and began reading through the papers.
He felt that his trust in Park Hyun-jae had already fallen as low as it could go.
“…”
Park Hyun-jae watched Seo Yong-won’s expression as he read through the report he had prepared. His eyebrows were changing moment by moment.
He seemed to be wavering, and Park Hyun-jae inwardly rejoiced.
“…So, in summary, you’re saying a crisis is coming?”
“What’s certain is that bond players in the UK securities market seem to view this situation very seriously.”
At Park Hyun-jae’s answer, Seo Yong-won looked at the report he had prepared once more. It was a report that made projections using quite sophisticated data.
“What do you estimate the scale to be?”
“It’s not certain, but the current LDI scale managed by UK pension funds and insurance companies is said to be around 74.5 billion pounds (approximately 120 trillion won).”
“That’s not all…”
“It may not be all, but it seems at least 30 billion pounds (approximately 48 trillion won) worth have already received margin calls.”
In the end, due to the UK’s political issues, government bond yields had skyrocketed, and pension and insurance fund managers who had invested in UK government bonds using debt were being asked to pay additional collateral.
No one would be able to pay such astronomical amounts additionally, which meant their default.
“The Bank of England won’t just stand by and watch this.”
“I agree.”
Seo Yong-won had to agree with Park Hyun-jae’s report this time. Whenever a global financial crisis occurred, each country’s central bank actively intervened.
Moreover, if UK national pension funds and insurance companies were to default in a chain reaction, all related industries would be affected, and UK government bond yields would inevitably rise again.
To prevent such a domino effect, someone had to step in, and that someone could only be the Bank of England.
“Soon, the market’s eyes will turn to the Bank of England.”
“So what’s your opinion, Assistant Manager Park?”
“As written at the end of the report, I believe we should enter before the Bank of England intervenes.”
Of course, if the Bank of England intervenes in the market and buys government bonds, bond yields will fall, and returns will rise.
Now was as good a time as any.
“May I ask you one thing?”
Seo Yong-won put down the documents and looked at Park Hyun-jae.
“Why are you so obsessed?”
“Obsessed, you say…”
“I’m asking why you’re so insistent on investing in the UK.”
“In any case, I am a portfolio manager. I need to find places to allocate and invest clients’ assets. I’ve simply found the most optimal investment opportunity.”
“Is that all?”
“And because the client’s profit becomes my profit too.”
As Park Hyun-jae said this, Seo Yong-won smiled and nodded.
“I understand. Give me some time to think about it for now.”
“Yes, I understand. I’ll take my leave.”
As Park Hyun-jae bowed and left, Seo Yong-won sighed.
“Performance bonus…”
Park Hyun-jae had ultimately mentioned his own profit.
That must be the core of it all.
It wasn’t wrong. After all, people in the financial industry, whether dealing with client money or company money, were in a profession where they received compensation proportional to the profits they generated.
“But it doesn’t seem good to be too fixated on that either…”
Muttering this to himself, Seo Yong-won pondered for a moment before picking up the phone on his desk.
“I’d like to see the updated UK data. Yes, now.”
Less than five minutes after he ended the call, there was a knock on the door, and a familiar face entered.
“Ah, Yoon Dokyung-ssi.”
“Part Leader, I’ve brought the data.”
“Shall we go through the explanation together?”
Seo Yong-won said this as he opened the documents.
“The UK’s 10-year bond yield has hit 4.5%. It’s the highest point in about 10 years, and it seems the market doesn’t trust the UK.”
“It’s risen more than expected.”
UK medium-term bonds usually yielded around 1.5-2%, and even recently, when things weren’t good, they maintained government bond yields of around 2.5%.
This meant the drop in yields was enormous.
“It seems the bond vigilantes have come to the UK.”
At Dokyung’s words, Seo Yong-won furrowed his brow.
Vigilantes referred to police organizations formed to protect their own towns when public authority failed to function properly.
Bond vigilantes were similar in nature, being groups that continuously sold the government bonds they held to drive up bond yields, warning the government or central bank.
Essentially saying, “You’ve messed up my bond yields by not doing things properly, so get your act together.”
“The situation… seems to be that way.”
While the rapid increase in bond yields was partly due to the UK government’s missteps, ultimately, it was a situation that could only occur if an organized group dumped bonds into the market all at once.
“The rapid rise in bond yields might affect some derivatives.”
“For example?”
“Those managed by pension funds or insurance companies…”
“Are you talking about LDI?”
“That’s right.”
When Dokyung said the same thing as Park Hyun-jae, Seo Yong-won chuckled, and Dokyung looked puzzled, not understanding why he was laughing.
“Ah, I’m sorry. So what do you think will happen?”
“It seems the UK National Pension Fund is exposed to the risk of receiving margin calls.”
“They must have invested quite heavily in bonds.”
Dokyung became increasingly puzzled by Seo Yong-won’s rather nonchalant questions. He had felt a chill down his spine when he saw this data last night.
“That’s correct.”
“Then do you also think the Bank of England will intervene?”
“They will inevitably have to intervene.”
“Then if we buy bonds when negative news about the UK National Pension Fund comes out, we could see a profit, right?”
At Seo Yong-won’s question, Dokyung furrowed his brow and spoke.
“No.”
When Dokyung answered this way, Seo Yong-won showed a surprised expression for the first time in their conversation.
“Why not? If the Bank of England intervenes, bond yields will rise.”
“Because it would be better if they don’t make an ambiguous intervention.”
“Let’s talk about this in more detail.”
At Seo Yong-won’s words, which seemed to ask for a more detailed explanation, Dokyung began to speak again.
“It’s because the UK is not leading this tightening.”
“The U.S. is leading the tightening, right?”
The global fiscal tightening was currently being led by the U.S. federal funds rate hike.
“During the 2008 Lehman Brothers crisis, U.S. Treasury Secretary Tim Geithner said this: ‘You need to have overwhelming force that looks like it’s too much, to get ahead of the crisis with minimal damage.'”
Ultimately, if the narrative floating in the market was “We can no longer trust the UK,” they needed to make people believe again.
Making the market believe in the UK again wasn’t about investing the minimum amount to cover expected damages, but about showing a movement to guarantee all the bonds they held.
In other words, if the Bank of England stepped in and bought government bonds unlimitedly, no one would want to sell bonds, and the bond market would quickly stabilize.
But the Bank of England couldn’t do that right now.
“Can’t the Bank of England do it?”
“They probably can’t. As I said earlier, the U.S. is leading the tightening.”
The U.S. was only thinking about itself.
“The U.S. will continue to increase the pace of tightening, and if the Bank of England buys bonds unlimitedly in the meantime, the value of the pound will continue to fall.”
If one side was absorbing money from circulation while the other kept releasing money, naturally, the value of the currency that was being absorbed would rise.
“As I said, I still think it’s better not to invest in the UK.”
“May I ask you one thing?”
Seo Yong-won looked at Dokyung with a serious expression.
“Is there a reason why you’ve consistently said not to invest in the UK from the beginning until now?”
“…A reason, you say?”
Dokyung asked back as if he didn’t understand Seo Yong-won’s question.
“Yes, it’s nothing special, I’m just curious about the reason.”
“I think the reason is in the data I’ve shown you. All the data paints a negative picture of the UK, and I don’t understand why we should take a risk by investing in the UK in this situation.”
Dokyung looked at Seo Yong-won with a serious expression.
“Because it could be high risk, high return. Whether it’s the returns on the products we manage or our performance bonuses.”
“…I’m sorry, but I can’t agree with your opinion, Part Leader. High risk, high return is a strategy you can employ when you alone bear the full responsibility for the risk. We are managing clients’ money.”
Seo Yong-won quietly focused on Dokyung’s words.
“We can’t take risks with clients’ money.”
And at Dokyung’s words, he smiled as if satisfied.
“I see. We can’t take risks with clients’ money… I understand. Thank you for your hard work. You may go now.”
At Seo Yong-won’s words, Dokyung bowed and left the Part Leader’s office, and Seo Yong-won watched his retreating figure.
“Looking at the same outlook, one person says to invest, and another says not to invest.”
Both Park Hyun-jae who had come to see him and Dokyung were predicting that an incident equivalent to a financial crisis would occur in the UK.
And that the Bank of England would intervene because of it.
“In the end, is it a difference in mindset?”
Seo Yong-won recalled the answers to the last question he had asked both of them.
‘Because the client’s profit becomes my profit too.’
‘We can’t take risks with clients’ money.’
Depending on whether they prioritized themselves or the client, the two gave different answers.
“Then what about me?”
Seo Yong-won posed the same question to himself.
He then fell into deep thought for a long time.
Tap tap tap-
As he pondered, tapping his fingers on the desk, Seo Yong-won let out a deep sigh, as if he had reached an answer.
“My answer is…”
Then, of the two reports lying side by side on his desk, he picked up the one Park Hyun-jae had brought and began feeding it into the document shredder.
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“Assistant Manager Park.”
The next day, at Yuseong Investment Securities’ Wrap Account Team 1.
Recently, the wrap management teams at various securities firms were having a miserable time.
The global stock market was already struggling due to the U.S. federal funds rate hike, and now the global asset market, including UK bonds where assets had been allocated, was deteriorating.
The manager of the trading team called for Assistant Manager Park Hyun-jae, but he seemed too focused on something to hear his voice.
“Park Hyun-jae.”
When he called again, Park Hyun-jae’s gaze turned to the manager, who gestured for him to come over.
“You called for me?”
“Are you looking at UK bonds?”
The manager asked, nodding towards the monitor screen at Park Hyun-jae’s desk.
“Yes.”
“I heard you went to see the Part Leader?”
The fact that the manager knew about the meeting with the Part Leader meant that the Part Leader had said something.
Park Hyun-jae looked at the manager with an expectant expression.
“That’s right. Did the Part Leader…”
“He said to drop it.”
“What?”
“He said to end the talk about UK investment with what was discussed in that meeting, to stop now.”
At the manager’s words, a cold expression began to settle on Park Hyun-jae’s face.
“You… I told you it wouldn’t work and to drop it… Anyway, this time the Part Leader praised the data you brought, so he said we’ll proceed when there’s another opportunity.”
“…”
“Why aren’t you saying anything?”
“…Why did he say no?”
“I told you. He said we can’t reverse a decision that’s already been made to postpone to the next opportunity.”
“Is that all?”
“Yeah, that’s all.”
“I understand.”
Park Hyun-jae bowed and returned to his seat, and the manager, who had expected him to rebel again, tilted his head in confusion at his seemingly resigned attitude before starting his own work.
“Sigh…”
Back at his seat, Park Hyun-jae let out a sigh. Then, as if he had made up his mind about something, he stood up and began walking with determined steps.
He then stood behind one person’s desk.
“Yoon Dokyung-ssi, shall we have a talk?”