The Impact of Pensions and Insurance on Global Yield Curves

56 Pages Posted: 16 Jun 2018 Last revised: 13 Nov 2019

See all articles by Robin M. Greenwood

Robin M. Greenwood

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Annette Vissing-Jorgensen

Federal Reserve Board; National Bureau of Economic Research (NBER)

Date Written: December 29, 2018

Abstract

We document a strong effect of pension and insurance company (P&I) assets on the long end of the yield curve. Using data from 26 countries, the yield spread between 30-year and 10-year government bond yields is negatively related to the ratio of pension assets (in funded and private pension and life insurance arrangements) to GDP, suggesting that preferred-habitat demand by the P&I sector for long-dated assets drives the long end of the yield curve. We draw on changes in regulations in several European countries between 2008 and 2013 to provide well-identified evidence on the effect of the P&I sector on yields and to show that P&I demand is in part driven by hedging linked to the regulatory discount curve. When regulators reduce the dependence of the regulatory discount curve on a particular security, P&I demand for the security falls and its yield increases. These effects extend beyond long government bonds. Our results suggest that pension discount rules can have a destabilizing impact on bond markets that reverses once rules are changed.

Suggested Citation

Greenwood, Robin M. and Vissing-Jorgensen, Annette, The Impact of Pensions and Insurance on Global Yield Curves (December 29, 2018). Harvard Business School Finance Working Paper No. 18-109, Swiss Finance Institute Research Paper No. 19-59, Available at SSRN: https://ssrn.com/abstract=3196068 or http://dx.doi.org/10.2139/ssrn.3196068

Robin M. Greenwood (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Annette Vissing-Jorgensen

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
708
Abstract Views
5,202
Rank
63,806
PlumX Metrics