The bond market meltdown dredged up memories of the \u0027death spirals\u0027 of the 2008 financial crisis. Read more here
Liability-driven investing strategies, designed to hedge the long-term obligations of pensions to their beneficiaries through the use of derivatives, triggered a selloff in bond markets after a rapid surge in interest rates forced funds to liquidate holdings.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc.
“That is a strategy that is used in Canada for Canadian corporate pension plans, and it’s also used in the U.S.,” said Ben Ukonga, a principal at Mercer LLC and leader of the retirement and benefits consultancy’s wealth business in Calgary. “But my understanding is a proportion of corporate plans in the U.K. utilize those strategies. In Canada … it’s a much smaller percentage of the plans out there.
Pensions “essentially had margin calls or collateral calls,” Ukonga said. Forced to raise cash quickly, investment managers turned to something they could easily sell — government bonds.Article content As for Canada, Ukonga doesn’t expect major fallout from the liability-driven investment strategies in use at corporate pension plans.
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