US pension briefing – August 2022

Key takeaways

  • Discount rates increased during August, ending the month about 0.35% higher than end of the July.
  • US and international equity returns were negative for the month. Similarly, U.S. treasuries and corporate bonds returned losses for the month with the increase in rates.
  • Funded status for most pension plans will remain level with market losses matching liability gains.

August 2022 summary

Treasury yields increased significantly across the curve, with the most severe increases at the shorter end of the curve. Corporate bond yields also increased in the latter half of August for both investment grade and high-yield bonds.  With discount rates up around 0.5%, plan sponsors can expect their liabilities to come down over the month.

August was once again a bad month for the market with equity indices generally returning -3% to -5%. At the same time, bond portfolios had negative returns. Combining asset losses and liability gains, plan sponsors should see their funded status remain level for the month.

Discount rates & asset returns

FTSE pension discount rate index last 12 months

Source: FTSE Pension Liability Index

After decreasing in July, discount rates increased again in August and finished at the same level as the end of June, with the FTSE pension discount curve finishing the month at 4.48%, a 0.35% increase from the end of July. Current rates are up 1.65% from the beginning of the year. Meanwhile, treasury rates also increased significantly in August, particularly on the shorter end of the curve, while credit spreads narrowed slightly.

August 2022 investment returns (%)

Source: Morningstar

Over the month of August, equity and bond markets were shaken by central banks’ determination to lower inflation. US equities lost 3.73% and International Developed equities lost 4.75%. Bond returns were negative as well with Long Treasury Bonds performing the worst. After Chairman Powell’s hawkish speech at Jackson Hole, the market has priced in another 0.50% to 0.75% rate hike in September despite most economic indicators already pointing towards slowed economic growth. The Fed’s hawkish stance continued to support the US dollar throughout the month, with the dollar index gaining 2.64%. Over the month, the 10-year treasury yield rose sharply to 3.2% and credit spreads narrowed modestly.


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