Pension Solutions Monitor

April 23, 2020

 

Key market moves

Market commentary

Oil price movements engulfed market headlines over the past week, as expiring futures contracts aggressively dipped into negative territory, bottoming at almost -$40 per barrel. However, even in the midst of earnings season, the influx of assistance from the Fed resulted in equities remaining relatively flat and credit spreads tightening ~3 basis points over the past week. The U.S. Senate recently approved an additional $484 billion in relief funds as well; however, this does not change the fact that unemployment is hovering around 15% (based on jobless claims), PMI readings are continuing to retract, and U.S. GDP forecasts are estimated to experience a yearly decline between -3% and -8% on an annualized basis. The U.S. Investment Grade Credit market continues to see heavy issuance, as $40 billion came to market over the past full week, bringing us to 70.6% ahead of 2019’s pace. Various states across the U.S. are also planning to relax social distancing measures in May, presenting an uncertain investing climate for the weeks to come.

As of April 22nd, LGIMA estimates that pension funding ratios decreased by 4.5% month to date, with tightening credit spreads and higher treasury rates negatively impacting pension plans. Our calculations indicate the discount rate’s Treasury component decreased by 11 basis points while the credit component tightened 35 basis points, resulting in a net decrease of 45 basis points. Overall, liabilities for the average plan have increased ~7.2% while plan assets with a traditional “60/40” asset allocation have increased ~0.6% month to date.

Performance

Source: Bloomberg Barclays, as of April 23, 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.