Pension funds climb out of deep hole

Pension funds climb out of deep hole

Pension funds have caught up.

For years, funds have been underfunded related to obligations and that left them in the position of having to reach for returns in riskier assets. The good news is that because of strong equity market performance, they're now in much better shape.

Milliman reports that in July 2020 the 100 largest US defined benefits plans only had 82% of the capital they needed. That's risen to 98.8%, which is the best since before the financial crisis.

Bank of America believes that as those numbers hit 100%, pension funds will want to pare risk and shift money into high-grade debt.

That could turn into some big flows with defined-benefit plans holding $3.5 trillion in assets and half in equities.

Here's a recent article from Bloomberg that argues that those flows are already happening. If so, that might help to explain the relentless bid in bonds.pens