As the pandemic keeps huge swathes of the global economy in lockdown, companies are curtailing or suspending their dividend payments. At the same time, longer-dated bonds — issued back in the day when interest rates were still positive — are being repaid as they mature. For pension funds, which have long-term obligations to fund the retirements of their savers, it’s a dreadful combination.

Earlier this week, JPMorgan Chase & Co. set aside $8.3 billion to cover the anticipated cost of consumers not paying their credit cards and companies not making their loan payments, its biggest bad-debt provision since the global financial crisis. Its analysts published a separate report estimating that global corporate profits will “crater” by 72% by the middle of the year, and will remain 20% below pre-virus estimates by the end of next year. If companies aren’t making money, they can’t pay dividends to shareholders.

So about a quarter of the companies in Europe’s Stoxx 600 benchmark index have scrapped or postponed dividends so far, according to calculations by my Bloomberg News colleagues Lukas Strobl and Kasper Viita. Estimated dividends per share have slumped accordingly.

The various state-aid packages available around the world are likely to come with strings attached, including an obligation to suspend payouts. On Tuesday, for example, German sportswear company Adidas AG said it won’t pay any dividends after getting an aid package worth 3 billion euros ($3.3 billion) from its government and a syndicate of banks.

The total of canceled payouts across Europe has reached $52 billion, income that won’t be flowing into pension schemes or other savings and investment products. That’s likely to rise further as more companies adjust to their newly straitened circumstances.

And it coincides with the end of older fixed-income investments that offered a combination of top quality and an income stream. In 2010, for example, a pension fund could have invested in 5 billion euros of five-year bonds issued by Kreditanstalt fuer Wiederaufbau, the German state-owned development bank also referred to as KfW. Those bonds, with top AAA ratings, paid an annual interest rate of 2.25%, meaning that a bondholder with 1 million euros of the securities would have received 22,500 euros every year.

When the borrower repaid those bonds in 2015, the fund could have reinvested in 6 billion euros of new five-year bonds. The interest rate, though, had declined dramatically, to 0.125%. So the new investment would have delivered just 1,250 euros of annual income for every 1 million euros invested.

It gets worse. Those bonds are scheduled to mature in June, at which point the fund could reinvest in 5 billion euros of five-year notes KfW sold in January — which pay an interest rate of precisely zero, nada, diddly-squat, nothing. 

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