By: Russ Kamp, Managing Director, Ryan ALM, Inc.

On August 5, 2022, I produced a post titled “Recession Fears Overblown” in which I stated, “I am more convinced that we will be saddled with inflationary pressures for longer without a corresponding recessionary environment.” I further mentioned that “calendar year 2000 is interesting as unemployment began to rise but given the low level of unemployment at that time, the economy never went into recession. Could our current landscape be foretelling a similar outcome?”

Well, 14 months later and we still don’t have a recession in the US, inflation remains elevated, and the US labor force continues to defy odds, as today’s US employment report highlights with 336K jobs created and positive adjustments to the prior months. As a result, US Treasury yields are rising in a pronounced fashion across the yield curve. The 30-year Treasury bond yield is <1 bp away from breaching 5%. I guess that it is safe to say that 2023 has proven to be very much like 2000.

This robust move up in rates continues to create an incredible environment for pension plan sponsors to de-risk their funds by migrating total return-seeking fixed income products to a cash flow matching strategy that carefully matches asset cash flows from bonds of principal and interest with the liability cash flows of benefits and expenses. There has not been this good an environment to reduce risk in at least 15 years. Please don’t linger. You have the chance to capture through a cash flow matching strategy roughly 85%-90% of the ROA objective with minimal risk, while securing the promised benefits for as far out as the allocation will cover. It is a win/win!