What Do Demographics and Interest Rates Really Look Like?



People tend to adjust their savings and borrowing over their lifetimes to match their spending ambitions with their earnings potential. This is known as the life-cycle hypothesis.

Children neither save nor borrow (although their parents may do so on their behalf); young adults borrow to fund house purchases, education and lifestyle; middle-aged adults are the biggest savers to provide themselves with retirement accounts; older/retired adults use their savings to support themselves. 

FIGURE 6: REAL 10-YEAR U.S. TREASURY BOND YIELDS AND DEMOGRAPHICS

Fig6

Source: CBRE/Macrobond, U.N., 2017.


FIGURE 7: REAL 10-YEAR INTEREST RATES AND DEMOGRAPHICS

Fig7

Source: CBRE/Macrobond, U.N., 2017.

This CBRE Research modeling exercise implies that the surge in the share of the world’s population aged 40 to 54 was a major factor behind the fall in real long-term interest rates since the mid-1980s (figures 6 and 7). In other words, it is savings accumulated for retirement accounts that have driven down interest rates. Looking ahead, although the share of this age cohort has leveled off, U.N. projections show no major reduction over the next decade (Figure 8). The share of the population aged 40 to 54 in China will trend down in the future, but will be more than compensated for by increases in the rest of Asia, Africa and Latin America. There is also a possibility that postponed retirement in developed economies will further extend the population of savers.

Figure 9 shows the share of the U.S. population aged 40 to 59, which is a way of tracking the baby boomer generation’s peak share of total U.S. population between 2005 and 2009 (baby boomers are often linked to the downward trend in interest rates). In reality, this indicator does not correlate well with real or nominal long-term interest rates. It appears that this demographic’s impact on the savings-investment balance is global rather than national.

The impact on the global savings/investment balance also depends on incomes. Growing incomes in emerging economies tend to increase the impact of demographic trends on the savings/investment balance.

FIGURE 8: THE WORLD'S POPULATION AGED 40-54

Fig8

Source: U.N., 2017.


FIGURE 9: COMPARATIVE DEMOGRAPHICS SHARES

Fig9

Source: U.N., 2017.

Explore the Report

What Drives Long-Term Real Interest Rates?

Future Path of Real Long-Term Interest Rates?

What Interest Rate Normalization Means For Global Real Estate Investors

Get Started with CBRE Capital Markets

Search Properties For Sale

Contact an Investor Services Professional

Learn More About Our Global Financing Capabilities