The Bank for International Settlements has published a research paper on global pension fund asset allocation and debt markets, with the authors finding that pensions worldwide have reduced direct holdings of fixed income securities and moved into mutual fund shares, foreign assets and alternative investments. The paper links part of this reallocation to declines in local currency government bond yields and says the shift could reshape demand for sovereign and corporate debt. Using OECD data for 87 countries from 1980 to 2023, supplemented by US flow of funds and other datasets, the authors show that US pension fixed income allocations fell from close to 40% in the early 1980s to around 10% in 2023, while mutual fund holdings rose from negligible levels to close to 30%. Fixed income shares in advanced European economies fell from 35% in the early 2000s to less than 20%, and in emerging market economies from about 80% to 50%. US evidence suggests the decline reflects a reduction in both public and private debt holdings, and the paper also documents a broader move into alternatives such as private equity, real estate and hedge funds, with alternative assets in US state and local pension portfolios rising from below 10% in the early 2000s to above 30% in 2024. In the cross-country estimates, a 1 percentage point fall in the 10-year local currency government bond yield is associated with roughly a 1 percentage point lower bond share in pension portfolios, a 1.5 percentage point higher mutual fund share and a 3.4 percentage point higher foreign asset share. The response is stronger for defined benefit plans than for defined contribution plans. The paper says the retreat of pensions from debt could affect borrowing costs and financial stability by shifting bond ownership toward other non-bank investors and leaving pensions more exposed to less liquid assets.
Bank for International Settlements2026-06-03
Bank for International Settlements publishes research linking lower bond yields to pension shifts from debt to mutual funds and foreign assets
The Bank for International Settlements published research showing that pension funds have reduced direct fixed income holdings and increased allocations to mutual funds, foreign assets and alternatives, partly in response to lower local currency government bond yields. Using data for 87 countries from 1980 to 2023, the paper finds that a 1 percentage point fall in 10-year government bond yields is associated with lower bond shares and higher mutual fund and foreign asset shares, with stronger effects for defined benefit plans. The authors warn that this retreat from debt could affect borrowing costs and financial stability by shifting bond ownership to other non-bank investors and increasing pension exposure to less liquid assets.