Pension fund investors have been typically viewed as some of the most dependable investors in global bond markets. Their long-term obligations make government and corporate debt a natural fit: bonds offer predictable income which matches future retirement payments, and support relatively stable portfolios. However, that relationship is changing. Recent research has shown that demand shifts by pensions move asset prices and that they in turn respond to yield curves. For example, Aldunate et al. (2025) show that Chilean pension fund flows impact the exchange rate and deviations in covered interest parity through bank liquidity. Relatedly, Jansen (2025) finds that pension funds and insurance companies responded to a Dutch reform that made liabilities more sensitive to the yield curve.

In our recent paper (Ding et al. 2026), we document a broad transformation in pension investing on a global scale. Across the US, advanced European economies, and emerging markets, pension funds have steadily reduced the share of their portfolios invested in fixed-income securities. At the same time, they have increased their exposure to mutual funds, foreign assets, and alternatives such as private equity, real estate, private credit, infrastructure, and hedge funds.

This finding has the potential for significant financial market implications since pension funds manage enormous pools of capital and have traditionally served as stable, long-term lenders to governments and companies. When they change how they invest, the consequences can spread through debt markets, borrowing costs, and financial stability.

A global retreat from bonds
The paper’s central finding is striking. Pension funds around the world are moving away from bonds as a share of their total assets. As shown in Figure 1 (a) for the US, fixed-income securities represented close to 40% of pension assets in the early 1980s. By 2023, that share had fallen to roughly 10-15%. Over the same period, mutual fund holdings rose from almost nothing to more than one-quarter of pension portfolios. A similar pattern appears in advanced European economies in Figure 1 (b). Since the early 2000s, their fixed-income allocation has fallen from approximately 35% to around 20%. Mutual fund shares, meanwhile, increased from below 20% to more than 50% by 2023. Although emerging-market pension funds started from a much higher bond allocation, they also showed a decline in holdings of fixed-income investments as highlighted in Figure 1 (c).

These changes in portfolio allocations matter because they reveal a common international trend despite major differences in pension systems, regulations, financial development, and economic conditions. It is a structural shift occurring across much of the global pension industry.

Is the bond exposure merely hidden?
The rise of mutual fund investing creates a potential measurement issue in this finding, however. A pension may sell bonds and buy shares in a bond fund, meaning its direct bond holdings fall while its underlying economic exposure remains largely unchanged. We address this issue with ‘look-through’ analysis. Using data for several advanced European countries, we combine bonds held directly by pension funds with bonds held indirectly through mutual funds.

The results shown in Figure 2 suggest that the shift is real, at least for these countries. Pension funds have increased some of their indirect bond exposure, but not enough to offset the decline in directly held bonds.

Switzerland provides a useful example. Direct bond holdings fell from slightly above 25% of pension assets in 2008 to a little over 5% in 2023. Indirect exposure through mutual funds increased, but total fixed-income exposure still declined from roughly 40% to below 30%.

Across the countries examined, the evidence indicates that pensions are not merely repackaging the same bond investments. Their overall exposure to fixed income is genuinely declining.

Read more @cepr