US. Pensions Are Almost Fully Funded and Coming for Your Bonds
A “massive rotation” into corporate bonds from equities may be on the horizon for U.S. pension funds as they become fully funded, according to strategists at Bank of America Corp.
Investment gains boosted the funded ratio of the 100 largest corporate plans to 98.8% in May, according to Milliman. That measure of defined benefit pension assets to liabilities has surged from 82% since July 2020, data from the risk management firm show.
If interest rates continue to rise, BofA expects the ratio to top 100%. That would trigger a significant move into high-grade debt by corporate pensions seeking to lock in gains, the bank said in a credit strategy note entitled “The elephant in the room.”
“I think this becomes a pretty big story, and it becomes a support for credit spreads in the back end of the curve especially,” Hans Mikkelsen, BofA’s head of high-grade credit strategy, said in an interview.
Read more @Bloomberg
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