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ECB says pension funds’ shift to bonds continues

EUROPE – The European Central Bank says pension funds and insurers in the euro area are still shifting out of equities and into fixed income and mutual funds.

The bank said the annual growth rate in the acquisition of debt securities rose to 11.5% from 9.7%, while mutual fund growth was 8.1% from 7.4%.

Meanwhile, the growth in funds and insurers’ holdings of equities fell to 1.1% from 1.5%.

“Insurance corporations and pension funds therefore continued to reduce their share of holdings of quoted shares in total assets while increasing their relative exposure to debt securities and mutual fund shares in the second quarter,” the ECB said in its monthly bulletin.

In addition, the bank reports that the annual growth rate of the financial investment of pension funds and insurers in the euro area rose to 7.5% in the second quarter from 6.7% in the first quarter.

The bank also noted pension fund demand for index-linked bonds – which it says may have pushed prices up and yields down.

“According to some anecdotal evidence, increasing demand for index-linked bonds from different types of investors, for example insurance companies and pension funds, may have pushed the prices of index-linked bonds up and their real yields down,” the ECB said.

And the ECB says gradually improving labour markets are expected to reduce the need for precautionary savings. “But, on the other hand, uncertainty about health care and pension reforms is likely to encourage them.”

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