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Impact Investing

IPE special report May 2018

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UK institutions move into long bonds – BOE

UK – The Bank of England – citing “market intelligence” - says institutional investors have started to shift their asset allocation towards long-dated bonds.

“Market intelligence suggests that institutional investors have indeed started to hold a larger proportion of their portfolios in long-dated bonds: in the United Kingdom, this has partly been instigated by regulatory changes,” the central bank said in its quarterly inflation report. “These factors could also have pushed down long-term real rates.”

The central bank said it was possible that financial market prices have “responded to the prospect of increased saving in the future”.

“The fall in equity prices between 2000 and 2003 — and the resulting shortfalls in some pension funds — may have led to a reassessment of the costs of funding retirement and a reduced willingness to take risk by mismatching assets and liabilities.”

And it added: “That decline in equity prices may also have increased the attractiveness of bonds.”

The comments come as high institutional demand for ultra-long government bonds in the euro zone have helped send yields to near record lows recently. Institutions are seeking longer-dated bonds to match their liabilities.

Both the UK and France have launched consultations on whether it is a good idea to have longer-dated bonds.

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