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Given the funding rules in place, even with the temporary funding holidays allowed under MAP-21 legislation last year, it is a certainty that funding ratios will improve. The question has been when. The answer has come – now. Given the rise in risk assets since the beginning of the year, followed by the recent bond sell off – which has seen the 10-year Treasury yield back up nearly 100 basis points since its recent low of 1.63% on May 1 – plan funding has had a decided uptick. Milliman estimates aggregate funding is up by 6 points year-to-date through May, and we’d estimate a further 2 to 3 percentage point increase in June. Plan sponsors are cruising through de-risking triggers and moving money from equities into long corporate bonds. A few large plans with better funding positions at year-end are either back to full funding or just on the doorstep. Buying of long credit has been strong throughout the year and has increased noticeably in the past few weeks. We anticipate it will continue through the balance of the summer and into the fall. These plan sponsors are happy to get off the roller coaster.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks, including market, interest rate, issuer, credit and inflation risk.
This material contains the opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This material is published by Institutional Investor. Date of original publication 8 July 2013.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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