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Canada’s pension fund is reviewing bond holdings in light of zero interest rates



Mark Machin, president and chief executive officer of the Canada Pension Plan Investment Board (CPPIB)

Cole Burston | Bloomberg | Getty Images

SINGAPORE — Central banks have slashed interest rates this year in an effort to revive economies ravaged by the fallout from the coronavirus pandemic. But low interest rates are proving to be a challenge for investors, even ones who have long-term, multi-generational views on investments such as Canada’s massive pension fund. 

While the Canada Pension Plan Investment Board’s (CPPIB) long-term game plan hasn’t changed much in light of the virus outbreak, the one thing that’s challenging the fund is the zero-bound, according to Mark Machin, president and CEO. 

“The fact interest rates are now zero-bound – does that change the diversification benefit of bonds in the long term? I think we, like a lot of long-term asset owners, are looking at reviewing that,” he told CNBC’s “Squawk Box Asia” at the Singapore Summit on Wednesday. 

Zero-bound refers to an expansionary monetary policy tool used by central banks to lower short-term interest rates to zero to stimulate the economy by reducing the cost of borrowing. But for bond investors that would mean they may receive less than their initial investment at maturity despite paying a large premium as bond prices and yields move in opposite directions.  

For example, a week and a half after the U.S. Federal Reserve cut its benchmark rate to near zero in March, yields on both the 1-month and 3-month Treasury bills dipped below zero.

“We have a lot of other fixed income alternative in our portfolio so we have things like infrastructure, power renewables, we have credit exposure, we have hedge fund exposure — we have a lot of other things in that space but that holding government bonds in large size is something that we will continue to examine, whether that’s the right thing to do at the zero-bound,” Machin added. 

CPPIB manages about 434.4 billion Canadian dollars ($329.75 billion) as of June 30 and a bulk of its investments are in North America — around 34% of total assets are allocated in the United States — followed by Asia. 

The fund is heavily invested in both the technology and health-care sectors and continues to invest, according to Machin. Companies in both industries have benefited from a change of consumption and corporate habits due to the pandemic. 

“Digitization is a massive theme across the world, it is being talked about — it’s probably a five to 10 year acceleration across many sectors,” he said. He pointed out how online education has taken off in Asia due to more specialized companies dealing with the changing trends and predicted that adoption would pick up over time in Europe and the U.S. 

Sustainable investing

CPPIB on its website says it factors in environmental, social and governance (ESG) risks and opportunities into its investment analysis and actively engages with companies to promote “improved management of ESG.” 

“We think no company can survive and thrive in the long term if they are not considering their impact on the environment, if they are not considering their impact on the communities they are in, if they are not considering the quality of the governance that they are running their companies with,” Machin said.

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Here’s what it’s doing to tackle it



A man with her protective face mask walks in Vellaces neighborhood after new restrictions came into force as Spain sees record daily coronavirus (Covid-19) cases, in Madrid, Spain on September 21, 2020. (Photo by Burak

Anadolu Agency | Anadolu Agency | Getty Images

LONDON — There can be no doubt now that Europe is facing the much-feared “second wave” of coronavirus cases, after a lull in new infections in summer when severe restrictions on public life helped stop the spread of the virus.

Now, as cases rise rapidly in the region, various European nations are taking action in an effort to stop the surge in infections and prevent a significant rise in fatalities.

To date, there have been almost 2.9 million confirmed cases of the virus in Europe and over 186,000 people have died, data from the European Centre for Disease Control and Prevention shows.

Despite the risks, leaders in the region are reluctant to impose nationwide lockdowns again, given the economic and societal implications of such moves, and are now looking at more targeted, localized measures.

Here’s a snapshot of what Europe’s biggest economies are doing to stop the spread of the virus:


Spain has recorded 671,468 infections — the highest number in Europe, and 30,663 deaths, according to Johns Hopkins University data. On Monday, it reported more than 30,000 new cases since Friday, Reuters reported.

Madrid has become a virus hotspot, with almost 800 new cases reported Monday. The surge has prompted the president of the city’s regional government to request help from the army to help battle the rise and parts of the capital have been put in lockdown, prompting protests.

On Monday, Spanish Prime Minister Pedro Sanchez said data showed that, in Madrid, “the infection rate is double the national level, the numbers of intensive care beds in use is three times the national level.” He signaled more stringent measures could be introduced in the city, saying it “demands its own plan,” El Pais reported


France has the second-highest number of confirmed coronavirus cases in Europe after Spain, with 496,974 infections to date and 31,346 deaths, JHU data notes. 

France reported 5,298 further cases on Monday from the previous day, a lower daily count due to the weekend data lag. Last Friday, France reported 13,215 new infections, its highest daily number since the start of the pandemic.

As a result of surging cases, the city of Lyon (France’s third-largest city) has introduced tighter restrictions, limiting public gatherings and prohibiting the sale and consumption of alcohol outdoors after 8pm, France 24 reported Monday. Visits to nursing home residents will also be restricted to two per week. Similar restrictions have already been imposed in other cities including Marseille and Bordeaux.


The U.K. has also seen a dramatic rise in coronavirus cases over recent days, prompting the government to introduce localized lockdown measures in parts of northern England and more national restrictions. To date, the country has recorded just over 400,000 coronavirus cases and 41,877 deaths, according to the JHU.

On Monday, the government announced that bars and restaurants must close at 10 p.m. Groups of more than six people are also not allowed to meet.

Prime Minister Boris Johnson will address the nation at 8 p.m. local time Tuesday evening and is expected to announce further measures. He is also said to be considering a “mini” lockdown of two weeks to try to act as a “circuit-breaker” in an effort to stop the spread of the virus.

The government’s chief medical and scientific advisors warned on Monday that, without action, the U.K. could see up to 50,000 new coronavirus cases per day by mid-October, which could lead to 200-plus deaths per day by November.


Germany was praised for its initial response to the first wave of the coronavirus crisis. To date, Germany has recorded over 275,000 cases, but has reported fewer than 10,000 deaths, JHU data shows, a far lower number of fatalities than its European counterparts.

Nonetheless, data from the Robert Koch Institute (RKI) shows that cases are rising, particularly in the cities of Munich and Hamburg.

On Tuesday, a further 1,821 new infections were registered after a rise of 922 cases reported Monday. German Chancellor Angela Merkel has reportedly called for a crisis summit next week with regional governors, German media reported Monday.

Munich has tightened rules on face masks, which must now be worn in public, and contact restrictions. German Health Minister Jens Spahn has also said Germany will step up its testing regime as cases rise.

On Monday, the RKI called for “the entire population to be committed to infection control” by consistently observing rules of distance and hygiene, and advising that “crowds of people should be avoided if possible and celebrations should be limited to the closest circle of family and friends.”


Italy was the epicenter of Europe’s first outbreak in late winter, with the first outbreak in Europe appearing in the north of the country in February. To date, Italy has reported almost 300,000 cases and over 35,000 fatalities. 

Italy is also seeing a rise in new infections, but not at the rate of its neighbors. On Monday, for example, it reported 1,350 new cases in the last 24 hours, the health ministry said.

Italian politicians are reluctant to return to a severe lockdown that saw Italians banned from leaving their homes for all but the most essential reasons.

Instead, Italy appears to be looking to test people arriving from other European virus hotspots. Health Minister Roberto Speranza said in a Facebook post Monday that he had signed an order making it obligatory for people arriving in Italy “from Paris or other parts of France with significant circulation” of the coronavirus to be tested.

Speranza added that European data on Covid-19 “must not be underestimated,” and that while “Italy is better off than other countries … great prudence is still needed to avoid rendering the sacrifices made up to now in vain.”

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