Standish Mellon Finds DB Plans Turning to Long-term Corporate Bonds

May 26, 2009 ( - Standish Mellon Asset Management Company LLC, the fixed income arm of BNY Mellon Asset Management, said U.S. corporate pension plans appear to be increasing their allotment to long-term investment-grade corporate bonds to protect themselves against the looming threat of soaring liabilities.

Since the beginning of 2009, pension plans have added more than $1 billion for Standish to invest in these bonds, according to a press release. Standish expects the yields on long-term investment-grade corporate bonds to fall back to more typical levels, which will push up pension plan liabilities substantially.

The value of plan liabilities moves inversely with long-term investment-grade corporate bond yields.

Pension plans have suffered from a 40% plunge in equity markets, noted Kent J. Wosepka, chief investment officer of active fixed income for Standish. “The significant increase in corporate bond yields actually reduced the current value of plan liabilities, helping to mitigate the pain to overall plan funding levels. The risk for pension plans is that corporate bond yields could fall back toward more normal levels, which could send liabilities soaring. If equity markets do not continue their rally, pensions could face severe funding issues,” he said in the announcement.