In April, some defined benefit pension plan sponsors saw an increase in funded status as global public equities and U.S. fixed income posted modest gains, outpacing the growth of pension liabilities. During the same period, the Treasury yield curve decreased across the short tenors and increased for the long tenors while credit spreads widened overall. NEPC’s hypothetical total return pension plan rose 1.6% in funded status compared to a modest uptick of 0.3% for our LDI focused plan.
Rate Movement Commentary
The Treasury yield curve shifted lower at the short- and intermediate-end and higher at the long end in April. The 10-year yield declined to 4.17%, while the 30- year yield increased seven basis points to 4.66%; corporate bond spreads widened for the month.
The movement in Treasury rates and credit spreads resulted in higher pension discount rates used to value pension liabilities. The discount rates for NEPC’s hypothetical pension plans increased about 10 basis points to 5.70% for the open total-return plan, while the discount rate for the frozen LDI-focused plan rose six basis points to 5.50%.
Plan Sponsor Considerations
In April, global public equities increased modestly, while long-dated fixed-income posted losses. During this period, Treasury rates declined across short- and intermediate-tenors and rose across the long tenors, while credit spreads widened overall. At NEPC, we anticipate continued market volatility and the potential for market disruption. Plan sponsors should remain diligent about monitoring sources of change in funded status versus expectations, as equities and interest rates are likely to remain volatile. This includes closely monitoring interest rate hedge ratios and allocating across the yield curve as interest rates change.
Market Environment and Yield Curve Movement
U.S. equities decreased 0.7% in April, according to the S&P 500 Index. During the same period, non-U.S. equities experienced gains with international developed markets up 4.6%, according to the MSCI EAFE Index; emerging market equities gained 1.3% last month, according to the MSCI EM Index. Broadly, global equities increased 0.9% during the month, according to the MSCI ACWI Index.
At the end of April, the Treasury curve decreased at the short end and increased at the long end from the previous month. This resulted in losses for longer-dated investment-grade fixed-income markets, with long-credit fixed income and long Treasuries in the red. In April, the Bloomberg Long Treasury Index declined 1.1% and the Bloomberg Long Credit Index was down 1.2%.
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