Key takeaways
- Discount rates increased significantly during the month, driven by rises in Treasury yields, pushing liabilities down.
- Equity and fixed income markets fell across the board, with very few exceptions.
- Most pension plan sponsors will have experienced minor funded status changes; depending on a pension plan’s characteristics, they may have seen slight declines or improvements in funded status.
April 2024 summary
Treasury yields increased significantly during the month of April, raising pension discount rates along with them while credit spreads held steady. With the significant rise in discount rates, we expect pension liabilities will have decreased approximately 3.5% – 6.5% depending on a pension plan’s characteristics.
Equity markets ended the month mostly down, with US equities seeing the largest declines. Foreign equities fell to a lesser degree, but emerging market indices did end the month slightly better off than they started.
The negative performance in the equity markets will have largely offset the liability reductions caused by the rise in discount rate. More mature plans most likely saw slight declines in their funded status, while those with liability durations of 10+ years most likely experienced slight improvements.
Discount rates & asset returns
FTSE pension discount rate index last 12 months
Discount rates rose sharply during April, increasing by 0.44%. This is the largest month-to-month rate change of 2024 so far, with volatility levels similar to those observed in Q4 of 2023. The curve is up 0.80% from April 2023 and up 0.72% from the beginning of the year.
US Treasury yield curve
The Treasury yield curve shifted higher across all maturities in April. The 5 and 7-year yields increased the most, each by 0.50%. The curve remains inverted with the 2-year yield 0.35% higher than the 10-year yield. With inflation holding steady, the Fed does not appear ready to cut rates, but the market is still pricing in cuts before the end of the year.
April 2024 Investment returns (%)
US equities lost ground in April with all cap US equities, represented by the Russell 3000 Index, losing 4.4%. International Developed equities also experienced negative returns, losing 2.6%. Emerging Markets equities posted a modest gain of 0.45%. Within US equities, all sectors experienced negative returns except for the utilities sector. Real estate was the worst performing sector over the month, losing 8.5%. Fixed income also lost ground in April as interest rates rose over the month. Long duration bonds performed the worst over the month as interest rates on the long end of the yield curve increased more than the shorter end. The price of gold continues to increase, up 2.3% in April.