We sincerely appreciate when friends share with us meaningful graphs/charts/articles – thanks, Chris, for the chart below!

According to Deutsche Bank Research, demand for stripped securities has been very strong from pension plans. Despite this increased appetite, long rates have been rising.  Come September, corporate plans will no longer be able to deduct pension contributions at the previous 35% rate. As a result, have pension plans accelerated their contributions? We think so, as they try to beat the 9/15/18 deadline. A $1 billion defined benefit contribution would save the company $350 million under the old tax laws, but only $210 million beginning later this summer.

Will long interest rates rise as a result of likely lower demand for long bonds?  Again, we believe that they just might. Couple the lower demand from pension systems and the stronger US economic growth, and you have a formula for rising rates.

We’d be happy to discuss our strategy to cash flow match near-term liabilities chronologically, which we believe is a much more cost-effective strategy in a rising rate environment.