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align="left">Sponsors who had a liability-driven investing program supporting their pension plans in 2008 were very pleased with the results. Many implementations respond to changes in interest-sensitive liabilities with complementary investments in long-duration Treasury bonds, or a long-term swap. "The 30-year swap was one of the best-returning instruments assets during 2008, and sponsors that had them got a huge bang for the buck," reports Marko Komarynsky of Watson Wyatt Worldwide. align="left">"Some clients are now doing some tactical thinking about taking off the Treasury swaps to capture the windfall. They figure rates are about as low as they can go, and that now is a time to switch to the credit sectors to take advantage of their cheapness," he adds. "They really don't have to go down the credit scale that much—there are tremendous yields with some pretty safe names. In some instances, the corporate yield curve matches up more closely to the discount curve they should be using." align="left">Komarynsky concedes that inserting corporate bonds into the picture creates some basis risk, in that Treasury and corporate yields can diverge, "but it's not so much an argument about matching the rates, or earning alpha with the credit spread, as much as it is for self-preservation and avoiding the hit they would eventually face when Treasury yields move in the other direction."
align="left">Sponsors who had a liability-driven investing program supporting their pension plans in 2008 were very pleased with the results. Many implementations respond to changes in interest-sensitive liabilities with complementary investments in long-duration Treasury bonds, or a long-term swap. "The 30-year swap was one of the best-returning instruments assets during 2008, and sponsors that had them got a huge bang for the buck," reports Marko Komarynsky of Watson Wyatt Worldwide.
align="left">"Some clients are now doing some tactical thinking about taking off the Treasury swaps to capture the windfall. They figure rates are about as low as they can go, and that now is a time to switch to the credit sectors to take advantage of their cheapness," he adds. "They really don't have to go down the credit scale that much—there are tremendous yields with some pretty safe names. In some instances, the corporate yield curve matches up more closely to the discount curve they should be using."
align="left">Komarynsky concedes that inserting corporate bonds into the picture creates some basis risk, in that Treasury and corporate yields can diverge, "but it's not so much an argument about matching the rates, or earning alpha with the credit spread, as much as it is for self-preservation and avoiding the hit they would eventually face when Treasury yields move in the other direction."