Reserve Managers Continue to Flock to Safe Haven Bonds
Ever since the global financial crisis, the ownership structure of sovereign debt in Occidental nations has shifted. Foreign investors have flocked to U.S. Treasuries, Gilts, and core European bonds such as Germany and France. Reserve managers at central banks and monetary authorities have increased asset allocation to these financial instruments. American public pension funds that have 7-8% target annual returns and contingent liabilities have increased allocation as well. A Keynesian policy response to the global financial crisis by Western nations has led to a massive increase of total stock of outstanding sovereign debt. A mishmash of tax revenue declines, automatic stabilizers extending fiscal deficits, and the lackluster aftermath of fiscal stimulus has contributed to outstanding government debt mushrooming.
Safe Haven Bonds
Public investors, reserve managers, and other foreign investors continue to flee to these safe havens for Treasuries, Gilts, and other core-European bonds. A consequence of foreign money to safe haven government bonds has pushed down those bond yields. The safe haven circle has been squeezed tighter; countries such as Spain, Ireland, Greece, and Italy have seen a massive exodus of foreign bond investors. The Japanese Yen and the Swiss Franc are also growing in importance. In fact, the Yen has risen, but most of the outstanding sovereign debt in Japan is still held domestically through post office savings.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]