The Effect of Shifting Wealth Ownership on the Term Structure of Interest Rates

Substantial shifts in wealth ownership from individuals to pension funds are currently taking place in the United States and also are in prospect for the foreseeable future. Moreover, pension funds typically exhibit portfolio preferences that are markedly different from those of individuals. In a world of heterogeneous investors, redistributions among wealth holders with different portfolio preferences will in general alter the structure of asset yields. Partial-equilibrium simulation experiments based on a model of the U. S. long-term bond market indicate that redistributions of saving flows from individuals to pension funds, in plausible magnitudes, can have major effects on the term structure of interest rates.