Figure 6 shows the ratio of Bond Buyers to Bond Sellers, which we use to gauge when net demographic buying demand might theoretically peak. On this metric, U.S. demographic demand for bonds should continue to rise in the next five years or so before peaking and may still be as strong in 2025 as it is today. (Our age definitions are based on patterns observed among U.S. households, so we focus primarily on the blue U.S. line in the figure. We include a global version of the Buyers versus Sellers ratio as well – the green line – which reveals an even later potential peak in global demographic demand for bonds.7

Our interpretation of this Buyers versus Sellers ratio assumes that each buyer exerts about the same influence on markets as each seller, an assumption that may be conservative given high-earning sellers draw down their portfolios only very gradually, whereas buyers likely will be de-risking aggressively in their 60s and early 70s. We “stress test” this assumption and result with scenario analysis in the Appendix.

Next, we explore the demographics of U.S. financial asset ownership at a very high level. Figure 7 shows household financial asset holdings by both age and income.8

The lion’s share of the $31 trillion in U.S. household financial assets9 ($21 trillion, or about 70%) is held within – or over the next 10 years will be held within – age cohorts that typically need to grow their fixed income allocation. This $21 trillion, outlined in green in Figure 7, is expected to remain in an accumulation or de-risking phase and won’t enter a drawdown phase within the next decade (based on the age-related asset drawdown patterns we described earlier). This $21 trillion will likely be a demographic tailwind for bonds over the next decade (especially for municipal bonds given high earners’ need for tax-free income). Conversely, only about $5 trillion (approximately 15%) of household financial assets seems likely to be a headwind for bonds during this period (outlined in red).

One caveat: Many factors other than demographics influence investors’ asset allocation decisions – among them changes in valuations, evolving expectations about future asset returns, individual risk preferences, U.S. investor preference for domestic versus foreign assets, foreign investor preference for U.S. assets, and market disruptions that may trigger significant portfolio rebalancing. Our analysis here focuses only on demographic effects, holding all else equal.

Now let’s go a level deeper. In the Appendix we model the potential demographics-related asset flows we might see over time from the gradual de-risking and drawdown of household financial assets. We analyze 10 unique scenarios in order to test a range of assumptions. Our “baseline” scenario reflects a set of assumptions about de-risking behavior and asset decumulation that we think is realistic (and possibly conservative) based on historical patterns. Our modeling suggests that U.S. demographics-driven fixed income inflows are likely to be almost as strong 10 years from now as we project them to be today – and that demographics may not be a material headwind for bonds until the 2030s. How can we explain these conclusions? In our analysis, for at least the next decade, de-risking flows and rebalancing flows into fixed income more than compensate for seniors’ portfolio drawdowns. In stress testing our baseline assumptions we found it hard to come up with a plausible scenario in which U.S. demographics become a fixed income headwind within 10 years. Yet we found it easy to imagine realistic scenarios in which demographic demand for bonds remains robust for the next 15 years or more. Consider as an example the high-earning elderly, for whom longevity risk is rising rapidly as life-extending medical technologies proliferate. High earners, historically, have been overly cautious in recalibrating their spending to meet anticipated future needs – a finding that could warrant an even more gradual asset-drawdown trajectory for this next generation of retirees than we have modeled based on historical experience.

A brief aside: Our focus here has been U.S. demographics and, implicitly, U.S. fixed income. However, U.S. demographics are likely to influence global fixed income markets given U.S. households account for over 40% of global household financial assets. For context, Western Europe and Asia each account for about 25%.10

Finally, a quick note on changes in the composition of household retirement savings. The shift from defined benefit (DB) to defined contribution (DC) plans in the U.S. persists, and in our estimation U.S. DB plans hold a lower allocation to bonds than a market-average glide path suggests is optimal for DC participants.11 In aggregate, therefore, the continued shift toward DC may represent an additional tailwind for bonds in the coming years.