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November 2024

Pension Liquidity Risk

By Kristy Jansen, Sven Klingler, Angelo Ranaldo & Patty Duijm Pension funds rely on interest rate swaps to hedge the interest rate risk arising from their liabilities. Analyzing unique data on Dutch pension funds, we show that this hedging behavior exposes pension funds to liquidity risk due to margin calls, which can be as large as 15% of their total assets. Our analysis uncovers three key findings: (i) pension funds with tighter regulatory constraints use swaps more aggressively; (ii) in...

October 2024

US. Most Corporate Pensions Saw Funding Dip in September

U.S. corporate pension funding ratios dipped slightly in September, as falling yields drove liabilities higher than could be offset by strong gains in equities, according to most of the country’s largest plan consultants. The consensus of slight declines in pension funding status comes after a month in which the Federal Reserve cut interest rates for the first time since the COVID-19 pandemic and its campaign of hikes to combat inflation, which began in 2022. Pension liabilities, driven in part by market interest...

September 2023

Welfare Analysis of Housing in the Presence of Interest Rate Risk

By Servaas van Bilsen, Theo Nijman & Emiliana van Erk  We model the welfare losses of (i) the presence of a mortgage with required repayments, (ii) a minimum pension savings constraint, and (iii) imposing a suboptimal investment strategy. We develop a life-cycle model which considers housing and interest rate risk. For a reasonable set of parameter values, we find welfare losses of up to 2.41% (5.02%) if a homeowner with a 30-year fixed-rate (adjustable-rate) mortgage faces a minimum savings constraint of...