Ryan: Negative Bond Market Helps Improve Pension Asset/Liability Ratio

November 7, 2003 (PLANSPONSOR.com) - Upward mobility in interest rates served as the catalyst for negative growth in both bond market and pension liabilities, as the pension asset/liability gap widened even more in October.

As the bond market headed south, both domestic and international equities turned in positive showings in October, helping widen the performance of pension assets to pension liabilities by 6.60%.  This in turn helped spur a movement in the 2003 asset/liability ratio, which now stands at 14.28% year to date from 7.68% last month (See Ryan: Liability Gap Spikes in September ), according to data from Ryan Labs.  

Examining October’s fixed-income markets shows the yield curve increased by 25 to 38 basis points.    Further, in reverse of the prior month, long duration securities experienced greater price declines and total rates of return.   For example, 30-year Treasuries were the worst performing sector, turning down by 3.26%, while two year BBB Corporates had October’s best performance, a negative 0.29% return.  

Since December 1999, the asset-to-liability growth rate difference (pension deficit) is now -48.29%, suggesting funding ratios below 70% for most pensions.   Ryan’s data is based on roughly $200 billion in assets tracked in its Custom Liability Index system.