BBerg: Pensions are almost fully funded and coming for your bonds

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grok87
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BBerg: Pensions are almost fully funded and coming for your bonds

Post by grok87 »

...
https://www.bloomberg.com/news/articles ... your-bonds
...
wrote: 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.”
30 year tips yields have been trending down over the last few weeks...
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by lazynovice »

But I have been told repeatedly on this site that the long bull market for bonds is over...
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nisiprius
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by nisiprius »

lazynovice wrote: Wed Jun 09, 2021 11:31 am But I have been told repeatedly on this site that the long bull market for bonds is over...
1) ""In general, we have thought that this very long bull market in bonds must be somewhere near the end."--Sir John Templeton, 1993.

2) You don't need to have a bull market in bonds in order to make money from bonds. Bonds make most of their money from coupon payments. You get the coupon payments independent of the market by buying at issue and selling at maturity. Pension funds are in a good position to do just that. You can also make money from capital appreciation, by buying after issue and selling before maturity if interest rates have fallen in that time frame. That's a tailwind, but it's not necessary. Airliners use the jet stream when they can, but they are able to get from point A to point B without it.

3) Inflation does exist. So do TIPS (inflation-linked bonds).
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by lazynovice »

nisiprius wrote: Wed Jun 09, 2021 12:53 pm
lazynovice wrote: Wed Jun 09, 2021 11:31 am But I have been told repeatedly on this site that the long bull market for bonds is over...
1) ""In general, we have thought that this very long bull market in bonds must be somewhere near the end."--Sir John Templeton, 1993.

2) You don't need to have a bull market in bonds in order to make money from bonds. Bonds make most of their money from coupon payments. You get the coupon payments independent of the market by buying at issue and selling at maturity. Pension funds are in a good position to do just that. You can also make money from capital appreciation, by buying after issue and selling before maturity if interest rates have fallen in that time frame. That's a tailwind, but it's not necessary. Airliners use the jet stream when they can, but they are able to get from point A to point B without it.

3) Inflation does exist. So do TIPS (inflation-linked bonds).
I should have used a sarcasm font. I have a 35% bond allocation at age 50. And it used to be 40%. I have not abandoned bonds yet.
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arcticpineapplecorp.
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by arcticpineapplecorp. »

I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by Horton »

While I can’t read the article, I expect the premise has virtually zero correlation with TIPS yields because most corporate pension plans do not contain CPI adjusted COLAs. These aren’t the bonds you’re looking for. Pension plans are mostly interested in nominal corporate and government credit.

The shift to credit has been occurring for at least a decade now, so this isn’t anything new.

OTOH, as plans become more fully funded I expect more and more plan terminations, where liabilities are sold to a life insurer. The insurers are likely to use a diversified asset allocation that will include some credit, but other things as well.

All in all, nothing to see here…move along.
80% global equities (faith-based tilt) + 20% TIPS (LDI)
runninginvestor
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by runninginvestor »

arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
Here's the source from the article:
https://us.milliman.com/en/insight/Pens ... -june-2021

"The funded status of the 100 largest corporate defined benefit pension plans increased by $8 billion during...."
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grok87
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by grok87 »

lazynovice wrote: Wed Jun 09, 2021 1:01 pm
nisiprius wrote: Wed Jun 09, 2021 12:53 pm
lazynovice wrote: Wed Jun 09, 2021 11:31 am But I have been told repeatedly on this site that the long bull market for bonds is over...
1) ""In general, we have thought that this very long bull market in bonds must be somewhere near the end."--Sir John Templeton, 1993.

2) You don't need to have a bull market in bonds in order to make money from bonds. Bonds make most of their money from coupon payments. You get the coupon payments independent of the market by buying at issue and selling at maturity. Pension funds are in a good position to do just that. You can also make money from capital appreciation, by buying after issue and selling before maturity if interest rates have fallen in that time frame. That's a tailwind, but it's not necessary. Airliners use the jet stream when they can, but they are able to get from point A to point B without it.

3) Inflation does exist. So do TIPS (inflation-linked bonds).
I should have used a sarcasm font. I have a 35% bond allocation at age 50. And it used to be 40%. I have not abandoned bonds yet.
just add /s to the end of your post
RIP Mr. Bogle.
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grok87
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by grok87 »

arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
they mean corporate pensions
RIP Mr. Bogle.
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arcticpineapplecorp.
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by arcticpineapplecorp. »

runninginvestor wrote: Wed Jun 09, 2021 1:22 pm
arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
Here's the source from the article:
https://us.milliman.com/en/insight/Pens ... -june-2021

"The funded status of the 100 largest corporate defined benefit pension plans increased by $8 billion during...."
thanks.

and thanks grok87 too.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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iceport
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by iceport »

arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm Is it possible stimulus is being used by governments to shore up their pension systems?
As noted above, the topic was corporate pensions. But to your question, arcticpineapplecorp., I doubt it would happen to any great degree, at least not directly. I live in a state with one of the very worst state pension funding levels in the nation, and I really don't see any sign of it. As you know, money is fungible, so that any external assistance directed toward any part of the budget helps the whole fiscal picture. But exactly the same competition exists today for scarce dollars as has existed through the decades that led to the pension under-funding to begin with. So it's not like the number crunchers are going to see this as a gift unique to the pension system.

The thing that has helped pension funds the most in recent years has been the stock market boom.

But arguing about whether relief funds are being used in some roundabout way to bring down unfunded pension liabilities is really missing the point, IMHO. Governments all across the country were hit with a natural disaster of sorts, those with well funded pension systems and those with huge underfunding alike. Both need assistance with the costs of that disaster.
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by Makefile »

arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
I've always understood that single-employer defined benefit pensions have never been the problem, because they have to follow ERISA requirements. And that this is why employers have so frequently frozen/eliminated them for new hires.

I believe state/local government pensions are exempt from ERISA, which is why they can be 20% funded, offer a 3% annual COLA for life, and so forth that can get them into trouble.
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Re: BBerg: Pensions are almost fully funded and coming for your bonds

Post by runninginvestor »

arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:37 pm
runninginvestor wrote: Wed Jun 09, 2021 1:22 pm
arcticpineapplecorp. wrote: Wed Jun 09, 2021 1:07 pm I can't read the article (behind paywall). Is it saying all US pensions or just corporate pensions are fully funded? If just the latter, I think this title should be revised to say "Corporate Pensions are almost fully funded and coming for your corporate bonds."

When I look at the state of State Pensions, they are nowhere near funded:
https://equable.org/state-of-pensions-2 ... ng-trends/

admittedly that link shows data through 2020. Is it possible stimulus is being used by governments to shore up their pension systems?
Here's the source from the article:
https://us.milliman.com/en/insight/Pens ... -june-2021

"The funded status of the 100 largest corporate defined benefit pension plans increased by $8 billion during...."
thanks.

and thanks grok87 too.
No problem, in contrast, here's the public pension index they provide:
https://www.my-milliman.com/en-GB/insig ... arter-2021
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