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  • Jonathan Poyer

Are The Markets Itching to Sell Equities and Buy Bonds?




Bloomberg posted an ARTICLE with a catchy headline:


Pension Funds in Historic Surplus Eye $1 Trillion of Bond-Buying


This is a really interesting article about the potential of pension funds to really re-allocate their portfolios back to bonds and match up their assets and liabilities.


From the article:


One of the pillars of the trillion-dollar pension fund complex is now awash in cash after struggling under deficits for two decades. This rare surplus at corporate defined-benefit plans, thanks to surging interest rates, means they can reallocate to bonds that are less volatile than stocks — “derisking” in industry parlance.


Strategists at Wall Street banks including JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. say the impact will be far-reaching in what’s already being coined “the year of the bond.” Judging from the cash flooding into fixed income, they’re just getting started.

...

The largest 100 US corporate pension plans now enjoy an average funding ratio of about 110%, the highest level in more than two decades, according to the Milliman 100 Pension Funding index. That’s welcome news for fund managers who suffered years of rock-bottom interest rates and were forced to chase returns in the equity market.


The article positions the environment as one where these large funds will be selling equities and buying bonds.


As we have highlighted elsewhere, fixed income markets tend to be positive after negative years. This could be a good sign for muni bonds and the fixed income market overall.

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