Ten-year Treasury yields climbed to 2.6% this week amid the near certainty that the Federal Open Market Committee will raise the overnight discount rate next week. This week’s high came as rates rose 30 basis points from Feb. 24, and 125 basis points from their nadir last July at 1.36%.
Rising rates present conflicting issues for pension sponsors, those that have increased their allocations have seen portfolio values decline -the Barclays Aggregate Bond index is down 0.44% year-to-date, and down 2.86% since the start of last July- but also have seen a rise in funded status. Corporate plans have notably increased their fixed-income allocations in recent years, mostly due to introducing liability-driven investment strategies. Those plans will likely add to their bond portfolios amid the pool of depressed assets, preparing for an eventual market correction that could be hard on equity markets and discount rates.