Higher savings seen to raise demand for low-risk assets

MANILA, Philippines — Increased savings during the pandemic will raise demand for safe assets, putting downward pressure on long-term government bond yields, said UK-based think tank Oxford Economics.

In a new global research brief titled “The consequences of pandemic-driven inequality,” the research firm said worldwide, the pandemic is likely to “exaggerate” income inequality with lower earners accumulating more debt and those with higher income accumulating savings.

“The surge in savings will raise demand for safe assets, which would put downward pressure on long-term government bond yields,” the report said.

Oxford Economics said the increased preference for safe investments to park savings in will be fuelled by the increased vulnerability of jobs.

“Historically, pandemics can trigger a rise in inequality, even over medium-term periods. Pandemics damage confidence in using in-person services, which disproportionately exposes low-skilled work to displacement,” it said.

“A unique feature of this pandemic is that the ability to work from home is providing a key factor in determining job losses — those that can are typically in higher paid jobs.”

The report said the poorest households spend more of their income on essential needs such as housing and food. When their incomes fall, they still have to spend on these essentials and so are often forced to take on debt.

Those with higher income, however, will have more savings to support future consumption.

“With higher inequality, individuals at the top end of the spectrum are likely to respond to greater income/wealth by saving more. This group already consumes to near maximum desire, so extra income will be used to protect future consumption through savings,” Oxford Economics said.