US. Fragile Retirement Funds Tested by Market Volatility, Bond Yields
The list of institutions challenged by the impact of the coronavirus now includes America’s pension funds. State and local government retirement systems face the difficult task of trying to plug funding gaps while protecting against investment losses.
The past two weeks of falling bond yields and heightened stock-market volatility have made that job even more complicated. Pension funds have for years been piling into stocks to try to reduce shortfalls after a decadeslong slide in bond yields slashed the returns they could expect from their fixed-income portfolios.
Today, stocks make up nearly 60% of pension fund assets, a 13-year high, according to database Wilshire Trust Universe Comparison Service. Blockbuster returns from the decadelong bull market have helped mitigate deep recession-era losses.
But this week, fears about how the novel coronavirus will affect the economy drove the yield on the 10-year Treasury below 1% just as stock volatility shot up on the heels of a massive selloff. Now pension funds are faced with even lower bond yields and no assurance that the equity market will rescue them.
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