Description:
This paper analyzes the systemic impact of massive pension funds’ portfolio reallocations triggered by a financial advisory firm. We analyze the main channels by which government bond yields are affected and trace their impact on households financing costs. We document significant and persistent price pressure in the domestic government bond market after portfolio switching recommendations. Further, we find persistent changes in government yields, particularly in long-term inflation-linked bond yields, triggered by changes in the term premium component. Consistent with the relevance of inflation-linked bonds as the primary benchmark in setting interest rates, we find a substantial impact on households’ financing costs