US pension briefing – June 2022

Key takeaways

  • Discount rates picked back up in June ending the month generally up around 0.25%.
  • Equities markets had a terrible month with most indices posting negative returns in excess of 8%.
  • Funded status for most pension plans saw a deterioration in June with market declines overpowering liability gains.

June 2022 summary

The Treasury yield curve flattened out again in June with short-term yields gaining the most and spreads continued to widen as fears of continued inflation and potential recession weighed on the markets. With discount rates up around 0.25%, plan sponsors can expect that their liabilities came down over the month.

However, June was a really bad month for markets with major US indices falling more than 8% pushing year-to-date returns below 20%. Unlike some previous months this year when we saw discount rates rising and equity markets falling that still resulted in funded status gains, June saw funded status declines for most plan sponsors. Even though discount rates were up, the resulting declines in liabilities weren’t enough to offset the downturn in assets.

Discount rates & asset returns

FTSE pension discount rate index last 12 months

Source: FTSE Pension Liability Index

After finishing May relatively flat, rates moved up again in June with the FTSE pension discount curve finishing the month at 4.48%. The June 30th rate matches highs that were last seen briefly in late 2018. Before then, it wasn’t since early 2014 that we saw discount rates around these levels. With these latest increases, discount rates are now up about 1.65% from the beginning of the year.

June 2022 Investment returns (%)

Source: Morningstar

Over the month of June, equity returns were negative across the board with US equities falling 8.37% and developed foreign equities falling by 9.28%. Credit spreads widened over the month, especially high yield which increased by 167 basis points. The price of oil came down from a high at the end of May to $105.76. Bond returns were also negative in June. High yield bonds declined the most by 6.73%. The US dollar strengthened by 2.88%, while gold fell by 1.64%.

SECURITY INDICES: This presentation includes data related to the performance of various securities indices which may provide an appropriate basis for comparison with underlying investments and the client’s total investment portfolio.  The performance of securities indices is not subject to fees and expenses associated with investment funds.  Investments cannot be made directly in the indices.   The information provided herein has been obtained from sources which Agilis Partners LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.

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