Standish Mellon Asset Management Sees $1 Billion Inflow to Long Corporate Bonds As U.S. Pension Plans Seek to Avoid Big Jump in
May 26 2009 - 7:54AM
PR Newswire (US)
BOSTON, May 26 /PRNewswire-FirstCall/ -- Standish Mellon Asset
Management Company LLC, the fixed income specialist for BNY Mellon
Asset Management, said that U.S. corporate pension plans appear to
be increasing their allotment to long-term investment-grade
corporate bonds to protect themselves against the looming threat of
soaring liabilities. Since the beginning of 2009, pension plans
have added more than $1 billion for Standish to invest in these
bonds. Standish expects the yields on long-term investment-grade
corporate bonds to fall back to more typical levels, which will
push up pension plan liabilities substantially. The value of plan
liabilities moves inversely with long-term investment-grade
corporate bond yields. "We are in a rough patch for pension plans,"
said Kent J. Wosepka, chief investment officer of active fixed
income for Standish. "However, this period has some major
differences from previous episodes of market volatility. For
example, during the 2001 recession, equity prices fell, which
decreased the value of pension plan assets. At the same time their
liabilities rose due to movements in the bond markets." This time
around pension plans have suffered from a 40 percent plunge in
equity markets, Wosepka pointed out. However, he added, "The
significant increase in corporate bond yields actually reduced the
current value of plan liabilities, helping to mitigate the pain to
overall plan funding levels. The risk for pension plans is that
corporate bond yields could fall back toward more normal levels,
which could send liabilities soaring. If equity markets do not
continue their rally, pensions could face severe funding issues."
"One way to cushion the impact of falling yields would be to invest
plan assets in long-term investment-grade corporate bonds, which is
what we are seeing from a number of pension clients," said Andrew
Catalan, senior portfolio manager and director of investment grade
strategies at Standish. "These bonds move in tandem with plan
liabilities. Investing in long-term investment-grade corporate
bonds can provide protection against rising liabilities due to a
declining discount rate. In addition, the yield on many
investment-grade corporate bonds exceeds eight percent, making them
attractive in their own right." Notes to Editors: Standish Mellon
Asset Management Company LLC, with $60 billion of assets under
management, (as of April 1, 2009), provides investment management
services across a broad spectrum of fixed income asset classes.
These include corporate credit (investment-grade and high-yield),
emerging markets debt (dollar-denominated and local currency), core
/ core plus and opportunistic (U.S. and global) strategies. The
firm also includes assets managed by Standish personnel acting as
dual officers of The Dreyfus Corporation and The Bank of New York
Mellon, each a subsidiary of The Bank of New York Mellon
Corporation. BNY Mellon Asset Management is the umbrella
organization for The Bank of New York Mellon Corporation's
affiliated investment management firms and global distribution
companies. The Bank of New York Mellon Corporation is a global
financial services company focused on helping clients manage and
service their financial assets, operating in 34 countries and
serving more than 100 markets. The company is a leading provider of
financial services for institutions, corporations and
high-net-worth individuals, providing superior asset management and
wealth management, asset servicing, issuer services, clearing
services and treasury services through a worldwide client-focused
team. It has $19.5 trillion in assets under custody and
administration, $881 billion in assets under management, services
more than $11 trillion in outstanding debt and processes global
payments averaging $1.8 trillion per day. Additional information is
available at http://www.bnymellon.com/. All information source BNY
Mellon Asset Management as at 31 March 2009 except where noted. The
views represented in this document are those of Standish Mellon
Asset Management and do not necessarily represent the views of the
BNY Mellon Asset Management umbrella organization. This press
release is qualified for issuance in the US and is for information
purposes only. It does not constitute an offer or solicitation of
securities or investment services or an endorsement thereof in any
jurisdiction or in any circumstance in which such offer or
solicitation is unlawful or not authorized. This press release is
issued by BNY Mellon Asset Management to members of the financial
press and media and the information contained herein should not be
construed as investment advice. Past performance is not a guide to
future performance. A Bank of New York Mellon Company(SM)
DATASOURCE: The Bank of New York Mellon Corporation CONTACT: Mike
Dunn, +1-212-922-7859, , or Sarah Deutscher, +44-20-7163-2744, ,
both of The Bank of New York Mellon Corporation Web Site:
http://www.bnymellon.com/
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