Euro spins new pensions doom loop

Comment on this story


EU Flag

http://www.sxc.hu/

Take some pity on the pension fund managers of northern Europe.

They're not facing deep cuts in their own pensions like retirees in Greece, but they are struggling to cope with an unprecedented drop in interest rates as investors flee weak euro zone countries and pile into safe-haven bonds.

Spooked by the euro crisis, investors are so concerned about the return of their money, rather than the return on their money, that Denmark has become the latest country to be paid for issuing debt.

A sale on Tuesday of 2-year notes produced a negative yield of 0.08 percent. Denmark, which is not a member of the euro, last month sold inflation-linked paper at a negative yield, but this was a first for an auction of debt bearing a nominal coupon.

Investors paid Switzerland, too, for the privilege of buying its debt on Tuesday. The governments of Germany and the United States have also been able to fund themselves with short-term paper for free.

While the likes of Spain and Italy can only marvel at the Danish government's good fortune, the market dislocation is giving the pension industry a headache. Falling interest rates pump up the present-day cost of meeting pension promises, forcing pension funds to buy ever more bonds to meet these future liabilities.

The feedback loop is another illustration of how the euro zone debt and banking crisis has exposed interlinkages that the architects of monetary union never anticipated. The mutual dependency of heavily indebted governments and their equally indebted banks is the most powerful example.

Alarmed by the unfolding risks, Denmark this month joined Sweden in trying to slow the stampede by allowing the country's pension funds to increase the discount rate they use to calculate their liabilities.

“You don't want your pension system chasing yields all the way down to zero because that would basically bankrupt everyone,” said Steen Jakobsen, chief economist at Saxo Bank in Copenhagen.

Finland and the Netherlands have taken similar steps so that pension managers are not compelled to sell equities in order to devote an ever-greater share of their portfolios to long-term fixed-income securities.

SAYONARA, EUROPEAN GROWTH?

Governments intervene in markets at their peril.

But Juan Yermo, the Organisation for Economic Cooperation and Development's leading pensions expert, said the four countries were justified in concluding that bonds are temporarily mispriced because of the euro zone crisis.

“Regulators are there to provide long-term countercyclical thinking, so basically they're doing the right thing,” Yermo said. “If you were to apply the strict methodology of risk-based solvency requirements, many of these funds would be under water and would be forced to be even more conservative than they are.”

Yet what if the markets are right? Leaving the euro zone's woes to one side, what if economic growth in Europe has moved to a permanently lower trajectory because of weak productivity and ageing populations?

What if, in short, Europe is about to follow Japan on a long path of economic stagnation where low interest rates are the norm? Twenty years after Japan's own bubble burst, ushering in a banking crisis, its 10-year government bonds yield just over 0.8 percent.

“This is a scenario that is somewhere in the back of the minds of policymakers. It is a possibility. It is not something that can be discounted,” Yermo said. “Clearly, in terms of growth prospects, ageing should certainly bring down growth rates compared to what we've had in the past.”

The economic backdrop is certainly not propitious.

Southern Europe would need to double its 0.7 percent annual productivity growth of the past 20 years or see GDP growth per head decline, the McKinsey Global Institute said in a report last week.

JP Morgan puts Spain's growth potential at just 2 percent a year. Goldman Sachs says countries on the fringe of the euro area have moved from a structural upturn preceding the crisis to a 'structural slump' in its aftermath.

“The combined level of output in the peripheral economies (Greece, Ireland, Portugal, Italy and Spain) is 7 percent below its 2008 peak. Our downbeat message implies that a significant part of this output loss will persist into the medium term,” Goldman economist Andrew Benito said in a note to clients.

WHERE TO PUT YOUR MONEY

Such an outlook seems tailor-made for bonds. But the danger, identified by the four northern European regulators, is of another feedback loop whereby rigid pension rules deter investments in riskier assets and thus, at the margin, make slower growth likely.

“The interest rates we have today are clearly out of line with long-term expectations so any regulatory adjustment that allows pension funds not to over-react is positive,” Yermo said.

“It's going to allow them to think a little bit more long term and that's clearly positive for equities, for real estate, for infrastructure and for all the alternative asset classes that may carry a risk premium or a liquidity premium over the longer term.”

The OECD's latest Pensions Outlook report, released last week, lamented that funded private pension schemes had an inflation-adjusted rate of return of a paltry 0.1 percent a year on average between 2001 and 2010.

That arguably constitutes yet another “doom loop” discouraging fund managers from switching out of bonds, which have vastly outperformed equities over the past decade.

But Jonathan Stubbs, European equities strategist at Citi in London, said the continent's shares were cheaper now, measured against the book value of companies, than they were in late 2008 after the collapse of Lehman Brothers.

And British and German equities have not been this cheap, relative to their domestic 10-year bond yields, in the last 100 years, Stubbs said. In short, a lot of bad news was already priced in.

“Valuations should be a reasonable support to share prices at these levels unless there is a global recession coming,” he said on a conference call on Monday.

Jakobsen at Saxo Bank also expects equities, after a dismal decade, to outperform bonds as markets revert to mean.

As such, the moves by northern Europe's pension regulators, even if they are a forced response to the unanticipated repercussions of the euro crisis, could prove to be prescient.

“The bet is that, first and foremost, companies are able to go through even a low-growth environment better than governments,” Jakobsen said. - Reuters


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

     

Join us on

IOL-Social networks IOL-Social networks IOL-Social networks IOL-Social networks
smilyz
I'm a 43 year old woman looking to meet men between the ages of 35 and 48.
View Profile
Smashizo
I'm a 29 year old woman looking to meet men between the ages of 32 and 37.
View Profile
tkay011
I'm a 23 year old woman looking to meet women between the ages of 25 and 45.
View Profile
BOTSHELOMAN
I'm a 32 year old woman looking to meet men between the ages of 35 and 42.
View Profile
maria8022
I'm a 34 year old woman looking to meet men between the ages of 40 and 60.
View Profile
mcgoyer
I'm a 26 year old woman looking to meet men between the ages of 27 and 35.
View Profile
Bonwel
I'm a 30 year old woman looking to meet men between the ages of 32 and 36.
View Profile
candy954
I'm a 31 year old woman looking to meet men between the ages of 45 and 70.
View Profile
mello_185
I'm a 26 year old woman looking to meet men between the ages of 25 and 60.
View Profile
Yahoo
I'm a 42 year old woman looking to meet men between the ages of 41 and 60.
View Profile
pumpania
I'm a 27 year old woman looking to meet men between the ages of 28 and 40.
View Profile
lala408
I'm a 46 year old woman looking to meet men between the ages of 40 and 55.
View Profile
Zama101
I'm a 29 year old woman looking to meet men between the ages of 29 and 100.
View Profile
kgotlas
I'm a 34 year old woman looking to meet men between the ages of 30 and 45.
View Profile
ProVoq
I'm a 43 year old woman looking to meet men between the ages of 50 and 70.
View Profile
SexLips
I'm a 26 year old woman looking to meet men between the ages of 25 and 45.
View Profile
Melone
I'm a 27 year old woman looking to meet men between the ages of 30 and 42.
View Profile
hellena_596
I'm a 37 year old woman looking to meet men between the ages of 37 and 45.
View Profile
Nola_505
I'm a 40 year old woman looking to meet men between the ages of 35 and 47.
View Profile
kauwel
I'm a 40 year old woman looking to meet men between the ages of 39 and 55.
View Profile
ntando_784
I'm a 34 year old woman looking to meet men between the ages of 40 and 50.
View Profile
CYAGal
I'm a 28 year old woman looking to meet men between the ages of 35 and 50.
View Profile
fiksBee
I'm a 25 year old woman looking to meet men between the ages of 26 and 40.
View Profile
The_GirlNextDoor
I'm a 32 year old woman looking to meet men between the ages of 30 and 43.
View Profile
Cyndilouper
I'm a 35 year old woman looking to meet men between the ages of 30 and 45.
View Profile
marryme2014
I'm a 34 year old woman looking to meet men between the ages of 37 and 45.
View Profile
Shazzyyyy
I'm a 29 year old woman looking to meet men between the ages of 28 and 35.
View Profile
TABIEE
I'm a 29 year old woman looking to meet men between the ages of 40 and 100.
View Profile
Voicelady
I'm a 40 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Curvz
I'm a 41 year old woman looking to meet men between the ages of 38 and 45.
View Profile
Sthandwasakhesit
I'm a 29 year old woman looking to meet men between the ages of 30 and 35.
View Profile
ChocLatte
I'm a 44 year old woman looking to meet men between the ages of 40 and 60.
View Profile
briluu
I'm a 24 year old woman looking to meet men between the ages of 27 and 37.
View Profile
ranga322
I'm a 32 year old woman looking to meet men between the ages of 31 and 40.
View Profile
honeybee_036
I'm a 25 year old woman looking to meet men between the ages of 25 and 50.
View Profile
Calmine
I'm a 24 year old woman looking to meet men between the ages of 25 and 40.
View Profile
simphy337
I'm a 30 year old woman looking to meet men between the ages of 35 and 45.
View Profile
Roroe
I'm a 26 year old woman looking to meet men and women between the ages of 22 and 30.
View Profile
mako_001
I'm a 35 year old woman looking to meet men between the ages of 35 and 70.
View Profile
kafze
I'm a 29 year old woman looking to meet men between the ages of 29 and 45.
View Profile
RareT0paz
I'm a 35 year old woman looking to meet men between the ages of 38 and 60.
View Profile
Sweetlipsss627
I'm a 21 year old woman looking to meet men between the ages of 25 and 50.
View Profile
MissD123
I'm a 39 year old woman looking to meet men between the ages of 36 and 47.
View Profile
Rosey903
I'm a 40 year old woman looking to meet men between the ages of 38 and 45.
View Profile
LavishT
I'm a 21 year old woman looking to meet men and women between the ages of 25 and 27.
View Profile
xoxohayleyxoxo
I'm a 26 year old woman looking to meet men between the ages of 18 and 100.
View Profile
joocypie
I'm a 28 year old woman looking to meet men between the ages of 27 and 45.
View Profile
lexy278
I'm a 32 year old woman looking to meet men between the ages of 30 and 40.
View Profile
ally_charmy80
I'm a 34 year old woman looking to meet men between the ages of 40 and 55.
View Profile
samke_722
I'm a 22 year old woman looking to meet men between the ages of 22 and 25.
View Profile
PrincessEdelweiss
I'm a 43 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Beautyful_gal
I'm a 32 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Royalness
I'm a 29 year old woman looking to meet men between the ages of 30 and 45.
View Profile
Noxy727
I'm a 27 year old woman looking to meet men between the ages of 30 and 36.
View Profile
DDeeZA
I'm a 45 year old woman looking to meet women between the ages of 19 and 50.
View Profile
Baabbygirl
I'm a 27 year old woman looking to meet men between the ages of 27 and 36.
View Profile
Leematt
I'm a 25 year old woman looking to meet men between the ages of 25 and 29.
View Profile
Garnet3107
I'm a 44 year old woman looking to meet men between the ages of 35 and 45.
View Profile
LadyJimpster
I'm a 23 year old woman looking to meet men between the ages of 22 and 28.
View Profile
Rivee
I'm a 24 year old woman looking to meet men between the ages of 26 and 32.
View Profile
sbobo736
I'm a 27 year old woman looking to meet men between the ages of 25 and 45.
View Profile
LolliCandy
I'm a 20 year old woman looking to meet men between the ages of 21 and 35.
View Profile
vengodess
I'm a 27 year old woman looking to meet men and women between the ages of 25 and 100.
View Profile
FanceFace
I'm a 27 year old woman looking to meet men between the ages of 28 and 45.
View Profile
Dudutuli246
I'm a 34 year old woman looking to meet men between the ages of 35 and 50.
View Profile
lulubaby
I'm a 33 year old woman looking to meet men between the ages of 30 and 70.
View Profile
Bathandwa83
I'm a 31 year old woman looking to meet men between the ages of 31 and 47.
View Profile
Thel_89_zzz
I'm a 25 year old woman looking to meet men between the ages of 30 and 45.
View Profile
spesy59
I'm a 35 year old woman looking to meet men between the ages of 32 and 40.
View Profile
gloml66
I'm a 48 year old woman looking to meet men between the ages of 40 and 58.
View Profile
Funfoodie3012
I'm a 49 year old woman looking to meet men between the ages of 45 and 55.
View Profile
mitch09
I'm a 29 year old woman looking to meet men between the ages of 35 and 40.
View Profile
Noks76
I'm a 38 year old woman looking to meet men between the ages of 37 and 45.
View Profile
Mistry_lady
I'm a 41 year old woman looking to meet men between the ages of 35 and 45.
View Profile
TT200
I'm a 25 year old woman looking to meet men between the ages of 25 and 35.
View Profile
sweetnessmgm
I'm a 26 year old woman looking to meet men between the ages of 40 and 63.
View Profile
nwaolisa
I'm a 31 year old woman looking to meet men between the ages of 32 and 41.
View Profile
vicky74
I'm a 40 year old woman looking to meet men between the ages of 38 and 45.
View Profile
kiara_111
I'm a 24 year old woman looking to meet men between the ages of 26 and 35.
View Profile
fungi1971
I'm a 43 year old woman looking to meet men between the ages of 40 and 50.
View Profile
Blaq_chic
I'm a 26 year old woman looking to meet men between the ages of 25 and 45.
View Profile
MeltChocolate
I'm a 35 year old woman looking to meet men between the ages of 40 and 50.
View Profile
curvalicious
I'm a 30 year old woman looking to meet men between the ages of 25 and 45.
View Profile
sassyfoxylady101
I'm a 33 year old woman looking to meet men between the ages of 25 and 45.
View Profile
Foxy88
I'm a 22 year old woman looking to meet men between the ages of 25 and 33.
View Profile
Mag137
I'm a 60 year old woman looking to meet men between the ages of 57 and 67.
View Profile
MASESHIA
I'm a 28 year old woman looking to meet men between the ages of 27 and 40.
View Profile
armor2014
I'm a 55 year old woman looking to meet men between the ages of 45 and 70.
View Profile
Casiopiea40
I'm a 44 year old woman looking to meet men between the ages of 35 and 50.
View Profile
leez83
I'm a 31 year old woman looking to meet men between the ages of 25 and 42.
View Profile
RealBlackPearl
I'm a 22 year old woman looking to meet men between the ages of 25 and 35.
View Profile
Emjae
I'm a 38 year old woman looking to meet men between the ages of 35 and 45.
View Profile
ME_JE
I'm a 43 year old woman looking to meet men between the ages of 35 and 50.
View Profile
zama1zn
I'm a 37 year old woman looking to meet men between the ages of 38 and 47.
View Profile
Dlodlolas75
I'm a 39 year old woman looking to meet men between the ages of 43 and 49.
View Profile
blosoble
I'm a 27 year old woman looking to meet men between the ages of 28 and 40.
View Profile
hlehle888
I'm a 41 year old woman looking to meet men between the ages of 45 and 50.
View Profile
danda100
I'm a 47 year old woman looking to meet men between the ages of 37 and 52.
View Profile
Leratomntande
I'm a 23 year old woman looking to meet men between the ages of 25 and 30.
View Profile
kncyLuv
I'm a 28 year old woman looking to meet men between the ages of 27 and 45.
View Profile
dev_xoxox52
I'm a 53 year old man looking to meet women between the ages of 41 and 65.
View Profile
tripplekkkk
I'm a 37 year old man looking to meet women between the ages of 18 and 30.
View Profile
Washe
I'm a 37 year old man looking to meet women between the ages of 25 and 33.
View Profile
Gemini24
I'm a 45 year old man looking to meet women between the ages of 30 and 45.
View Profile
Dayo78
I'm a 36 year old man looking to meet women between the ages of 20 and 50.
View Profile
lookingforfunza
I'm a 36 year old man looking to meet women between the ages of 20 and 40.
View Profile
Siyabulela90
I'm a 24 year old man looking to meet men between the ages of 25 and 45.
View Profile
Thulani1234
I'm a 42 year old man looking to meet women between the ages of 27 and 45.
View Profile
shiva709
I'm a 56 year old man looking to meet women between the ages of 45 and 56.
View Profile
Siwithpie
I'm a 44 year old man looking to meet women between the ages of 23 and 45.
View Profile
gothicD
I'm a 44 year old man looking to meet women between the ages of 18 and 37.
View Profile
Bento1
I'm a 52 year old man looking to meet women between the ages of 38 and 50.
View Profile
Tuzet
I'm a 27 year old man looking to meet women between the ages of 25 and 33.
View Profile
Diva1308
I'm a 43 year old man looking to meet women between the ages of 18 and 100.
View Profile
Pappers
I'm a 71 year old man looking to meet women between the ages of 50 and 65.
View Profile
PoundzMm
I'm a 23 year old man looking to meet women between the ages of 23 and 30.
View Profile
Lawrence218
I'm a 26 year old man looking to meet women between the ages of 25 and 39.
View Profile
GastFR
I'm a 39 year old man looking to meet women between the ages of 25 and 39.
View Profile
Deathrow5662
I'm a 39 year old man looking to meet women between the ages of 25 and 35.
View Profile
GD1
I'm a 70 year old man looking to meet women between the ages of 55 and 65.
View Profile
Chacal
I'm a 44 year old man looking to meet women between the ages of 30 and 40.
View Profile
mesut909
I'm a 45 year old man looking to meet women between the ages of 25 and 55.
View Profile
Minkh
I'm a 30 year old man looking to meet women between the ages of 18 and 29.
View Profile
IceTy
I'm a 42 year old man looking to meet women between the ages of 18 and 42.
View Profile
Jb24golf
I'm a 40 year old man looking to meet women between the ages of 32 and 38.
View Profile
Mash70
I'm a 44 year old man looking to meet women between the ages of 25 and 45.
View Profile
Jabz_0
I'm a 29 year old man looking to meet women between the ages of 25 and 36.
View Profile
hawk619
I'm a 44 year old man looking to meet women between the ages of 35 and 45.
View Profile
bobbylava
I'm a 35 year old man looking to meet women between the ages of 18 and 31.
View Profile
shooter_949
I'm a 51 year old man looking to meet women between the ages of 20 and 50.
View Profile
Rendzo
I'm a 47 year old man looking to meet women between the ages of 25 and 45.
View Profile
mattgeah
I'm a 31 year old man looking to meet women between the ages of 25 and 40.
View Profile
Ma1010n
I'm a 26 year old man looking to meet women between the ages of 25 and 45.
View Profile
TSKgosiemang
I'm a 52 year old man looking to meet women between the ages of 35 and 50.
View Profile
Jono693
I'm a 42 year old man looking to meet women between the ages of 25 and 45.
View Profile
Shadra143
I'm a 22 year old man looking to meet women between the ages of 18 and 45.
View Profile
Lucky123nxt
I'm a 36 year old man looking to meet women between the ages of 18 and 40.
View Profile
2282B
I'm a 48 year old man looking to meet women between the ages of 26 and 37.
View Profile
oceanmoon
I'm a 61 year old man looking to meet women between the ages of 41 and 55.
View Profile
gario
I'm a 54 year old man looking to meet women between the ages of 18 and 50.
View Profile
Henry071
I'm a 28 year old man looking to meet women between the ages of 25 and 35.
View Profile
Qtip
I'm a 30 year old man looking to meet women between the ages of 26 and 32.
View Profile
dlalo
I'm a 44 year old man looking to meet women between the ages of 18 and 100.
View Profile
Seriousaboutlife325
I'm a 38 year old man looking to meet women between the ages of 18 and 100.
View Profile
Oupa0414
I'm a 29 year old man looking to meet women between the ages of 25 and 33.
View Profile
JonnyBee
I'm a 26 year old man looking to meet women between the ages of 19 and 28.
View Profile
mcD
I'm a 39 year old man looking to meet women between the ages of 25 and 40.
View Profile
jakobus
I'm a 34 year old man looking to meet women between the ages of 18 and 100.
View Profile
Mpeks
I'm a 22 year old man looking to meet women between the ages of 18 and 30.
View Profile
catcher182
I'm a 22 year old man looking to meet men between the ages of 20 and 24.
View Profile
Vbe2014
I'm a 37 year old man looking to meet women between the ages of 25 and 30.
View Profile
Clownstotheleftofme
I'm a 45 year old man looking to meet women between the ages of 32 and 41.
View Profile
charged
I'm a 40 year old man looking to meet women between the ages of 25 and 35.
View Profile
bangstar
I'm a 22 year old man looking to meet women between the ages of 19 and 23.
View Profile
CoolnCalm
I'm a 35 year old man looking to meet women between the ages of 25 and 45.
View Profile
sweetman465
I'm a 67 year old man looking to meet women between the ages of 48 and 62.
View Profile
Ernie_Manyesa
I'm a 32 year old man looking to meet women between the ages of 20 and 45.
View Profile
Mxo87
I'm a 27 year old man looking to meet women between the ages of 18 and 30.
View Profile
Mokoka01
I'm a 42 year old man looking to meet women between the ages of 28 and 35.
View Profile
loner729
I'm a 40 year old man looking to meet women between the ages of 25 and 45.
View Profile
STONE_228
I'm a 42 year old man looking to meet women between the ages of 18 and 35.
View Profile
THOKZANHLA
I'm a 44 year old man looking to meet women between the ages of 25 and 44.
View Profile
SPG
I'm a 49 year old man looking to meet women between the ages of 18 and 50.
View Profile
Deejay_homy
I'm a 46 year old man looking to meet women between the ages of 18 and 42.
View Profile
mixido2
I'm a 39 year old man looking to meet women between the ages of 18 and 35.
View Profile
Moxion
I'm a 27 year old man looking to meet women between the ages of 18 and 35.
View Profile
GWL321
I'm a 58 year old man looking to meet women between the ages of 46 and 56.
View Profile
tonym
I'm a 44 year old man looking to meet women between the ages of 24 and 35.
View Profile
tsvoritsvoto
I'm a 27 year old man looking to meet women between the ages of 18 and 25.
View Profile
princepoqo
I'm a 29 year old man looking to meet women between the ages of 18 and 45.
View Profile
myth909
I'm a 34 year old man looking to meet women between the ages of 25 and 45.
View Profile
sbo123sss
I'm a 30 year old man looking to meet women between the ages of 25 and 45.
View Profile
bloodmoney370
I'm a 43 year old man looking to meet women between the ages of 30 and 50.
View Profile
LIONKING915
I'm a 59 year old man looking to meet women between the ages of 38 and 50.
View Profile
Smooth_Kriminal
I'm a 27 year old man looking to meet men between the ages of 25 and 45.
View Profile
ngla35
I'm a 38 year old man looking to meet women between the ages of 18 and 100.
View Profile
mfhalim
I'm a 42 year old man looking to meet women between the ages of 18 and 35.
View Profile
Eriqnes
I'm a 33 year old man looking to meet women between the ages of 21 and 35.
View Profile
Mahlobo
I'm a 46 year old man looking to meet women between the ages of 28 and 45.
View Profile
kpl23
I'm a 35 year old man looking to meet women between the ages of 26 and 34.
View Profile
Fanzonator
I'm a 28 year old man looking to meet women between the ages of 25 and 45.
View Profile
Terror000
I'm a 28 year old man looking to meet women between the ages of 25 and 45.
View Profile
TuEsDAy
I'm a 52 year old man looking to meet women between the ages of 35 and 55.
View Profile
michaelangelo
I'm a 27 year old man looking to meet women between the ages of 18 and 25.
View Profile
chumisto
I'm a 34 year old man looking to meet women between the ages of 18 and 100.
View Profile
bigbhele
I'm a 34 year old man looking to meet women between the ages of 18 and 55.
View Profile
Kelvin7777
I'm a 50 year old man looking to meet women between the ages of 42 and 56.
View Profile
Sabloma
I'm a 45 year old man looking to meet women between the ages of 20 and 35.
View Profile
Thamza_77
I'm a 37 year old man looking to meet women between the ages of 18 and 35.
View Profile
Satisfactor99
I'm a 37 year old man looking to meet women between the ages of 18 and 35.
View Profile

Business Directory