A fall in bond prices has been predicted for some time; in August Paul Singer, manager of the $28 billion Elliott Management fund said investors are facing “the biggest bond bubble in world history”. When prices start to drop, he warned, it will be “surprising, sudden, intense, and large”.

However, while bond yields have widened considerably since Donald Trump’s ascension to the White House last week, interest rates and yields have never been this low or this negative. This means that while fears of inflation are driving the bond sell-off, amid expectations that Mr Trump’s proposed increase in infrastructure spending will see inflation rise, fears of an “intense and large” drop in bond prices may be as of yet (or if ever) some way away.

Nonetheless Irish pension savers, particularly those who have just retired or are coming close to that day, should be aware of what exactly their bond holdings are, and what risks market events might pose for them.

So what do pension savers need to be aware of?

If you’re coming close to retirement...

If you opted for a “lifestyling” approach with your pension savings, whereby you agreed to move most of your portfolio into bonds as you approach retirement, significant movements in the bond markets could impact how much you’re going to retire on.

Given the collapse in bond yields in recent times, thanks in part to the European Central Bank’s monetary policy, the price of bonds have soared - but as yields start to widen once more, this puts pressure on the price of bonds which stand to fall.

And if you’re an impending retiree with a large proportion of your pension savings in bonds, you’re more at risk than most of getting hit by this market move, with a swing in interest rates likely to hit holders of long-dated bonds sharpest. This could mean that if bond yields rise substantially, your bond funds may have negative returns at a time when you won’t want to lose any of their capital.

If you’re considering an annuity...

The risk of being overweight in bonds as you approach retirement is less keenly felt if you intend getting an annuity.

Annuities are typically purchased by pensioners from life companies with the proceeds of their pension policy, in return for a fixed rate of income until they die. For many pensioners they are attractive because they take the investment risk out of your pension. But how much a person gets typically depends on interest rates, and given the recent slump in interest rates, many retirees have opted to invest in an approved retirement fund (ARF) instead. Indeed back in the 1980s, for example, you might have reasonably expected to get an annuity rate of about 10 per cent, which would have given an income of about € 10,000 a year on a € 100,000 capital sum. These days the return is lower, with Irish Life for example quoting a rate of 6.30 per cent for a 76-year old woman, or €6,270 a year. A 65-year old on the other hand would be in line for a rate of just 3.8 per cent, or €3,800 a year.

If you still have a preference for a guaranteed income for life, you may be wise to hold tight a little while longer and postpone making a decision on an annuity.

Irish-based insurance companies price annuities off European government bonds - and the yields on these are starting to rise, albeit off very low bases. The Irish cost of funding for example, has jumped to more than 1 per cent from 0.32 per cent in late September.If this trend was to continue, annuity rates could start to look at little bit more attractive for retirees.