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You are leaving SSGA.com
The website you are accessing is created and maintained by another entity. We make no representation or warranty with respect to the information contained on the site or that it is appropriate in all jurisdictions or countries, or for use by all investors or counterparties. The products and services discussed at this site may not be appropriate for sale or use by all investors or counterparties. By providing this link, we are not providing you with investment advice or offering securities for sale to you. All persons and entities that access this site do so on their own initiative and are responsible for compliance with applicable local laws and regulations.
You are leaving SSGA.com
The website you are accessing is created and maintained by another entity. We make no representation or warranty with respect to the information contained on the site or that it is appropriate in all jurisdictions or countries, or for use by all investors or counterparties. The products and services discussed at this site may not be appropriate for sale or use by all investors or counterparties. By providing this link, we are not providing you with investment advice or offering securities for sale to you. All persons and entities that access this site do so on their own initiative and are responsible for compliance with applicable local laws and regulations.
Insights
Don’t Let Tighter Spreads Leave Your Plan Behind
Rising credit spreads offset both falling Treasury yields and plunging equity markets over the past quarter, sparing corporate defined benefit plans from a worse outcome than might have been feared.
Over the past quarter, the typical corporate defined benefit (DB) plan may have experienced a modest erosion in funded status. However, the factor that helped DB plans, rising credit spreads which led to declines in liability values, is quickly turning into a challenge as declining spreads and interest rates are both driving liability values back higher. Understanding this risk – and managing plan asset strategy accordingly — will enable plan sponsors to navigate what we expect to be a continued period of market volatility.
The Bloomberg Barclays U.S. Corporate Long AA Index (the “Long AA Corp Index”) is a reasonable proxy to analyze historical spread volatility associated with the discount rates used by corporate plan sponsors. The duration of the Index is 16.3,1 reflective of many plans’ liabilities and the long history of the data available allows us to observe how the yield of the index and its components — duration equivalent Treasury yields and the implicit credit spreads — respond to different events over time. As of April 15, the yield on the Long AA Corp Index was 2.81% and the option adjusted spread was +169 basis points (bps) compared to 3.13% and 84 bps, respectively, at the end of 2019.