WYDave - 9/14/2018 19:56 One of the big problems for pensions is that the Fed has crushed bond yields. Bonds used to be a BIG part of pension investment portfolios - because they were easier to model for their returns, as well as they were less speculative Bingo ! This low interest rate environment has done serious damage to those that use laddered bond purchases to match their ongoing liabilities like pension funds and insurance companies. This is why this QE is ending and rates are creeping up. These funds can no longer take the damage. The real issue is this pain comes on gradually over the life of the bond but it also goes away gradually too. From a now offline article cited for reference but unavailable to read. https://market-ticker.org/post=231873 Blue text below are quotes from the article. "a Fed that has driven short-term Treasuries to under 1% and held them there for ten years. As I pointed out at the time the Fed did this the bond laddering that pensions and other actuarial-based institutions must use means that while the initial impact of this in the first couple of years is muted because of the fact that only a 20th or 30th of the portfolio rolls over this also means that over time the damage accumulates every year and remains for the same 20 or 30 years! It's impossible to get rid of that damage once it occurs because if you sell those bonds out early you crystallize the loss and this bankrupts you on an instant basis." |