Normally I ignore the mainstream press doom mongering around whatever they feel will sell papers but i'm struck by the articles on the potential for a collapse in the Bond market.
The idea is that they become less attractive and as the impact of reversing out of QE comes into play there will be a massive sell off of bonds which will cause a collapse in the bond market.
Anyone had any thoughts on how this might impact certain shares? Assuming i've understood correctly then am I right in thinking that those with large final salary pensions would be hit hardest and their share price would be impacted? or have I misunderstood?
Thoughts on this anyone?
Carey
Hi Carey.
It's not necessarily my opinion, but I think the chain of causality is that if QE is withdrawn, interest rates will rise which means bond prices will fall (Yield and Price being inversely proportional). Theoretically, higher bond yields would mean lower pension deficits (i.e. the differential between the pension fund NAV and the present value of future pension liabilities discounted at a rate based on bond yields) which could actually help companies with a large pension deficit.
I am sure its a lot more complicated than this, law of unintended consequences and all that, but I believe this is the general direction of travel that ending QE could bring about.
Best,
Gus.
