Some western Governments may resort to engineering pools of captive capital as a form of financial repression, thus impacting the risk associated with bonds, according to Blackrock Australia head of fixed income, Steve Miller.
He said that rather than completely defaulting, Blackrock believed debt-stressed developed countries might try to disguise their unwillingness to fully meet obligations to global creditors.
It was a risk that many superannuation funds and retail investors had failed to recognise, assuming western government bonds were risk free.
Discussing the possibility of Government's pursuing "financial repression", Miller said they could utilise regulations to dictate the degree to which domestic financial institutions were required to hold Government debt.
"As forced buyers of Government debt, financial institutions would essentially be compelled to accept lower returns than could be available in an open market," the Blackrock analysis said.
It went on to state that it did not believed the potential threats to valuations and returns from Government debt were therefore being adequately captured in current issuer-weighted fixed income benchmarks.
"Traditional fixed income benchmarks assume that the riskiness of all western governments' debt is equal," the analysis said. "Europe's rolling debt crisis is just one of the events that show that this assumption is hugely problematic."
The research house has offered a silver lining after super fund returns saw the end of a five-month streak last month.
A survey of almost 6,000 fund members has identified weakening retirement confidence, particularly among those under 55 years of age, signalling an opportunity for super funds to better engage with members on their retirement journey.
The funds have confirmed the signing of a successor fund transfer deed, moving closer to creating a new $29 billion entity.
A number of measures, including super on Paid Parental Leave, funding to recover unpaid super, and frameworks to encourage investment in the energy transition, have been welcomed by the superannuation industry.
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