Pension funds of German DAX-listed companies are increasing bond holdings to better manage funding ratios and limit balance sheet volatility.
Many DAX firms recently lifted government bond allocations to hedge rising funding ratios relative to pension obligations amid interest rate shifts, Christoph Schaumlöffel, head of portfolio management Europe at WTW Investments, told IPE.
Bonds account for almost half of DAX pension assets, which total around €260bn.
German government bonds (Bunds), considered a safe haven, help hedge funding ratio moves due to historically low euro zone volatility. Currency-hedged US Treasuries are also gaining in importance, offering higher yields than Bunds, Schaumlöffel said.
DAX companies are largely avoiding French government bonds (OATs), or limiting holdings to short-term maturities, citing political uncertainty and widening spreads versus Bunds.
The OAT-Bund spread narrowed after French prime minister Sebastien Lecornu, reappointed by president Emmanuel Macron, survived a ‘no-confidence vote’ and presented the 2026 budget, while freezing pension reform until the 2027 presidential election.
“OATs will continue to skate on thin ice,” said Martin Wolburg, senior economist at Generali Investments.
DAX pension funds are seeking diversification through other euro and supranational issuers.
“We also see corresponding positioning in the active government bond mandates managed by fund managers,” Schaumlöffel said.
Kai Lehmann, senior analyst at asset manager Flossbach von Storch, noted that DAX funds tend to favour borrowers with high credit ratings (A or above) to minimise credit risk.
Flossbach von Storch currently sees “limited” opportunities in government bonds to achieve a real return above the discount rate used for pension liabilities, he added.
Investment-grade bonds with long maturities, from both government and private issuers, remain key to hedging interest rate sensitivity of obligations, Stefan Break, head of asset management and pension finance at DAX-listed E.ON, told IPE.
Yields on developed-economy government bonds have risen in recent months, particularly for long maturities, surpassing high-quality corporate bonds, he added.
Investment-grade corporate bonds offer a modest premium over government bonds with moderate risk.
In recent years, Schaumlöffel said, their share has increased slightly, driven by higher interest rates. “However, this trend has recently flattened somewhat as capital is also being allocated to private debt and infrastructure strategies”.
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