Key takeaways
- Discount rates were down slightly as Treasury yields declined, pushing liabilities up
- Equities were up across the board
- Most pension plan sponsors experienced funded status gains over the month, especially those
with higher exposures to equities.
March 2024 summary
With the slight pull back in interest rates during the month, pension liabilities generally increased anywhere from 0.75% – 1.5% depending on a plan’s cash flow characteristics. Credit spreads continue to be tight, compared to typical levels. Equity markets finished the quarter strong with large cap equities generally rising over 10%, with almost every sector posting positive returns. While not as dramatic, international developed markets and US small cap stocks finished the quarter up over 5%. Even though discount rates pulled back slightly during the month, with positive equity returns across most asset classes, March was another good month for pension plan funded status. Most plans will have experience funded status improvements, especially those with higher allocations to equities.
Discount rates & asset returns
FTSE pension discount rate index last 12 months
Discount rates dropped during March, decreasing by 0.09%. This marks the smallest month to month change of the year thus far. However, the overall change in Q1 is an increase of 0.28% showing continued high volatility. We saw a similar level of volatility in rates during Q1 2023. In that quarter the curve decreased by 0.22%.
US Treasury yield curve
The Treasury yield curve shifted modestly lower across most periods in March. 2-year and longer maturities decreased while the 3-month and 1-year maturities slightly increased. The Fed announced at the March meeting that they are holding the policy rate range at 5.25% to 5.5%. Both the Fed and the market’s expectation is interest rates will lower in 2024, with the majority of the cuts coming in the second half of the year.
March 2024 Investment returns (%)
March was a strong month for both global equities and US fixed income. US equities gained 3.2% and emerging markets equities gained 2.5%. Within US equities, all sectors experienced positive returns over the month. The energy, materials and utilities sectors contributed the most to relative returns, and consumer discretionary contributed the least. Large cap stocks outperformed small cap stocks, and value stocks outperformed growth stocks. Interest rates decreased in March, aiding fixed income securities’ performance. Rates decreased particularly on the long end of the treasury curve helping long credit bonds to gain 1.9%. March was an exceptional month for gold as the price increased by 9.3%.