US Pension Briefing – November 2023

Key takeaways

  • Pension discount rates fell sharply in November, declining from just over 6.0% to end the month at 5.3%, the single largest change month-over-month since 2008.
  • As yields fell across the curve, both stocks and bonds throughout the world posted strong returns.
  • Despite the strong market returns, individual plans funded status outcomes will vary based on their unique allocations and liability characteristics. We expect that some plans saw improvements while others experienced funded status deterioration.

November 2023 summary

After climbing for the last six months, the yield on the 10-year Treasury fell more than 50bps in November while the FTSE Pension Discount Curve fell even further, off 70bps for the month. The Federal Reserve held its policy rate steady and more dovish than expected comments from the Fed Chairman prompted bond market participants to buy in expectation of falling rates in 2024. The broad US bond market had its best monthly return since July 1984 with all sectors posting gains.

Global equity markets also rebounded steadily throughout November and posted strong gains. The rally was broad-based as large and small domestic stocks gained 9% or more. The gains extended to the rest of the world as well, with Europe up nearly 10%, Asia Pacific stocks up more than 7% and emerging markets stocks up about 8%. Benign inflation, employment within expectations and falling rates helped spur the equity markets in November.

The combined effect of positive equity returns coupled with falling discount rates will have varied effects on pension plan funded status for November. Shorter duration plans and those with higher allocations to equities most likely saw gains, while underfunded plans with more liability matching assets may have even seen their funded status deteriorate over the month.

Discount rates & asset returns

FTSE pension discount rate index last 12 months

Source: FTSE Pension Liability Index

Discount rates decreased 0.70% in November, with the FTSE pension discount curve finishing the month at approximately 5.31%. A 70 bps month-to-month change marks the largest rate change in a single month since 2008. Discount rates have increased 0.34% in the trailing twelve months and 0.28% since prior year end.


US Treasury yield curve 

Source: U.S. Department of the Treasury

The Treasury yield curve shifted lower across all periods in November. 5-year and longer yields fell farther than the short end of the curve, all decreasing by roughly 50 basis points. The shift down is mostly attributed to the market’s expectations that the Fed has reached a peak of its interest rate hike schedule. There is sentiment that the Fed will start cutting rates in 2024, which will promote an environment for a rally in the bond market.

November 2023 Investment returns (%)

Source: Morningstar

November was a bounce back month for both equities and fixed income. Us equities had a strong month returning over 9%. Within US equities, the energy sector was the only sector with negative returns (-1%). Information technology and real estate were the top two performing sectors both returning over 12%. Consumer discretionary and financials were also strong performing sectors. Over the month large cap stocks beat small cap stocks, and growth stocks beat value stocks. Fixed income also had strong results as interest rates came down in November. Rates fell farther on the longer side of the yield curve, with the 10-year yield falling 51 basis points, causing longer duration bonds to perform better than shorter duration bonds.

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