Research Briefing | Sep 29, 2023

Why the real yield on private wealth will keep falling globally

Despite the importance of returns on private wealth for long-term investors – be they households, asset managers, or pension funds – the fact that real yields have been on a downward trend across the world for decades seems to have escaped attention.

What you will learn:

  • This trend has important implications for monetary policy and asset allocation. The long-run slide in yields goes hand-in-hand with the rise in private wealth: as wealth rises, yields fall.
  • The gap between private wealth yields and real government bond yields has widened substantially in recent decades. This may have weakened the link between policy and private sector rates, making the monetary policy transmission channel less effective, which may help explain why inflation seems to have responded more sluggishly to policy rate hikes recently.
  • Our yield forecast is driven by population ageing and the empirical fact that elderly households hold more wealth. While this sets aside many factors that are more difficult to model, our results are based on a recent, dynamic methodology that robustly captures the key interactions between real yields, household wealth accumulation, and asset supply by firms.
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