June 15, 2011 / 3:41 PM / 8 years ago

European investors fear interest rate risk-study

Ó * Market drops, sovereign debt crisis also top concerns

* Euro expected to survive, but Scandinavians sceptical

LONDON, June 15 (Reuters) - European institutional investors see changes in interest rates as the biggest threat to their investments, a study by Allianz Global Investors (AGI) showed on Wednesday.

A poll of 150 institutions including pension schemes and insurers, running 990 billion euros ($1,423 billion), ranked interest rate risk as the chief concern, followed by a stock market fall and the Europe’s sovereign debt crisis.

Thirty percent of the respondents named uncertainty connected to interest rates, of which one third cited rising rates specifically. Rising interest rates generally push down the price of a fixed rate bond.

“Being a pension fund with liabilities with an average maturity of 20 years, it is the interest rate levels that will always be the biggest risk,” an unnamed Swedish investor told the AGI survey.

Half of the respondents said interest rates were a ‘considerable risk’ to achieving their financial goals, although concerns about these risks were stronger in countries where investors traditionally invest more in bonds, such as Germany.

Investors in Austria, France and Italy were most concerned about sovereign debt risk, in the wake of the bail-out packages extended to Greece, Ireland and Portugal.

Investors keen on equities such as the British and the Scandinavians saw falls in market prices as well as interest rates as the main risks.

Hedging interest rate exposure, monitoring risk and further diversification were the three most popular options to deal with risk in the next 12 months.


Just over three quarters of respondents thought the euro would survive under the current circumstances, chiming with the results of a Reuters poll of economists showing a confidence that the euro zone will weather the sovereign debt crisis.

However, more than one in three respondents thought weak euro zone countries will be punished or exit the currency, while more than one in two expect more harmonisation including fiscal discipline.

The euro has proved resilient to the lingering euro zone debt crisis, finding support from expectations the European Central Bank will hike rates in July.

Scandinavian respondents, however, proved the most sceptical. More than 80 percent of Danish respondents mentioned deep budget cuts or exits from the euro for Portugal, Ireland, Greece and Spain.

“Some will have to get out [of the euro] or be thrown out”, a Danish insurer told the survey. ($1=.6957 euros) (Reporting by Cecilia Valente and Natsuko Waki, Editing by Greg Mahlich)

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