Funding ratios at the typical U.S. corporate pension plan rebounded five percentage points in January as higher corporate bond yields drove liabilities 10.1%, according to BNY Mellon Asset Management.
The improvement came despite a 5.5% decline for assets at moderate risk pension portfolios as stock markets fell. The higher funding ratios provided some relief to battered pension plans, which experienced a decline of 31.5 percentage points in funded status during 2008, as represented by the BNY Mellon Pension Liability Index.
BNY Mellon Asset Management is seeing significant interest in its longer term corporate bond strategies from pension plans that are seeking to limit the impact that a sharp fall in bond yields would have on their funded status.
“Long-duration, high-quality corporate bond yields rose 70 basis points in January,” says Peter Austin, executive director, BNY Mellon Pension Services. “Corporate bond yields remain at historically high levels and corporate spreads continue to be very wide. Plan sponsors are increasingly aware of the negative results that falling corporate yields would inflict on pension liabilities and are quite wary of the current environment.”
“A substantial rally in the equity markets would help these plans. But given the volatility of the equity markets over the last year, many pension plans also are focusing attention on limiting the damage that can occur on the liability side.”
L.D.