Pension Solutions Monitor

April 13, 2020

 

Key market moves

Market Commentary

Last week, markets were dictated by positive sentiment, as the equity market experienced their largest rally since the aftermath of the Great Depression, and US Investment Grade Credit tightened 36 basis points. The bull market was driven by the Federal Reserve’s substantial revisions to the terms of their corporate bond buying facilities, which expanded their purchasing program to HY bonds. This is in addition to the prospects of an OPEC+ oil production agreement to cut 9.7 million barrels of supply. The US Investment Grade Credit market saw $37.2 billion in issuance, bringing us to 61.9% ahead of 2019’s pace. Many are viewing this rally with a critical and cautious eye, as the looming uncertainty of earnings season, paired with negative economic data, could act as strong headwinds for short-term global asset performance.

As of April 9th, LGIMA estimates that pension funding ratios remained flat month to date, with tightening credit spreads offsetting the changes due to positive equity performance. Our calculations indicate the discount rate’s Treasury component increased by 1 basis point while the credit component tightened 27 basis points, resulting in a net decrease of 26 basis points. Overall, liabilities for the average plan have increased ~4.0% while plan assets with a traditional “60/40” asset allocation have increased ~4.1% month to date.

Performance

Source: Bloomberg Barclays, as of April 13, 2020

 

 

Views and opinions expressed herein are as of April 2020 and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.