August proved to be a difficult month for equity markets as continuing trade tensions and weakening economic data triggered a flight to safety. As a result, interest rates fell across the curve more so at the long end which caused a portion of the yield curve to invert. Emerging market equities were hurt the most in this off-risk environment. Given the above, funded status for plans that were not hedged likely decreased significantly for the month.
Following up on what was a very positive month of June for most plans, July proved to be fairly uneventful. Modest movement in discount rates with generally small equity gains should leave most plans in more or less the same funded position at the end of the month as they were in at the end of June. Year-to-date performance should look good for most plans.
June was another period of volatile market movements as rates continued to fall off the back of the Federal Reserve’s decision to leave base rates unchanged – for now. Meanwhile global equity markets had a strong month, with U.S. equity markets in particular reaching all-time highs. For most plans this would have led to an improvement to their funding level, contributing to positive year to date performance. Following a difficult May this month was certainly a welcome relief.
2019 had been a fun ride for pension plan sponsors through the start of May, however the past few weeks have been less than fun. Year-to-date performance is still likely to be positive for most plans, but falling interest rates and negative equity returns during the month likely took a big chunk out of 2019’s gains. There’s no silver lining to be found here, as May was a bad month all around for pension plans.
Market ActivitySource: LIMRA Secure Retirement InstituteFollowing the record-breaking $26.3 billion in 2018, total pension buyout sales eclipsed $4.7 billion in Q1 2019, an increase of 240% compared to Q1 2018. Sales were driven by many small and mid-sized...
Understanding the dynamics that drive interest rates is critical to understanding the level of current rates, why they have changed in the past, and how they might change in the future. This understanding allows investors and pension sponsors to make informed decisions on how to deploy their bond portfolios and what to expect from their long-term, interest rate-sensitive liabilities.
The month of April increased funded status gains since the beginning of the year. For most plans, gains since the beginning of the year should be up by about 2% to 3%. Equities added to 2019’s strong returns, with US equities leading the way in April.
Market ActivitySource: LIMRA Secure Retirement InstituteTotal pension buyout sales once again increased in 2018. Q4 sales totaled nearly $10.5 billion which brings total 2018 sales to $26.4 billion, compared to $23 billion in 2017. While Q3 and Q4 sales...
The month of March gave back some of the funded status gains since the beginning of the year. For most plans, gains since the beginning of the year should still be up by about 1% to 2%. Equities added to 2019’s strong returns, with global equities up over 10% year to date. The fall in discount rates and the corresponding increase in liabilities remind us of the impact that changes in rates have on a pension plan’s funding status.
Key Takeaways: Discount rates were relatively stable. February was a quieter month for bond markets following prior volatility in both US Treasury yields and corporate bond yields. Equities rose as markets continued to look beyond recent concerns about...