Aging Baby Boomers Produce Lower Interest Rates

Aging Baby Boomers May Be
A Boon for Bond Market,
Helping to Keep Interest Rates Low
By MARK WHITEHOUSE
February 27, 2006; Page A2, Wall Street Journal Online

This is a different spin on lower yields due to more capital chasing returns. WSJ says that retiring baby boomers, getting out of stocks and into bonds, may held to keep demand high for bonds and consequently, interest rates lower.

I don't think I can post the whole article cos of copyright - but worth a read.

 

Interesting Rickson

There's been some recent research suggesting the contrary, at least with respect to the fair sex. Apparently older women are more prepared to take on riskier investments i.e. those with a growth component than men of similar age.

The rationale seems to be that mature women are realising that they'll probably outlive the blokes and thus need some growth investments to see them through till their late 80s...

Anyone else have some views on this?

 

Rickson,
Have you got link to this article?
Which bonds we are talking about :
Commonwealth gov. bonds,
state and territory bonds,
corporate bonds,
inflation indexed bonds,
global $A bonds,
treasury adjustable rate bonds or euro bonds.

 

Tropo
Here is the link.
http://online.wsj.com/article/SB114100302088583850.html?mod=money_page_left_hs
I subscribe for about A$10 per month. I don't think much WSJ content is free.

 

Tropo
Here is an extract, that addresses some of your questions:

"But there's another potential economic impact of having an aging population: Baby boomers could switch their nest eggs out of stocks and into safer bonds, helping to keep long-term interest rates low.

Boomers -- the demographic bulge of people born between 1946 and 1964 -- have tended to favor stocks, which are riskier than bonds but tend to offer better long-term returns. Over the next several years, though, some 17 million of them will approach the retirement barrier, pushing the over-55 population to about 25% of the total U.S. population, from 23% today.

When that happens, some analysts and academics say, boomers and their pension-fund managers may opt for the relative safety and regular income of long-term bonds or similar investments. Since interest rates and bond prices move in opposite directions, the added demand would keep rates low. That could be tough on new retirees looking to live on the cash generated by their investments. It could also stimulate the economy by making long-term borrowing cheaper, though a sagging stock market could have the opposite effect."

 

Rickson,
Thanks for the link and an extract
The immediate question is: is it possible that say 25% of population will keep the interest low?

"Baby boomers could switch their nest eggs out of stocks and into safer bonds, helping to keep long-term interest rates low".
Well ... this is a very risky statement as far as I am concerned.
How can anybody be sure that this will keep long term interest low ?
I am not convinced. After all it sounds a bit like prediction to me.