Tag Archives: 6-5

10.06.26
by

And There You Go: 6.5% YTM on a 30-year CFM assignment – Incredible!

By: Russ Kamp, CEO, Ryan ALM, Inc.

For those of you responsible for the management of public DB pension systems, the news that we can build a 30-year cash flow matching (CFM) portfolio with a YTM of 6.5% through an investment-grade corporate bond portfolio while restricting quality to BBB+ or better should be incredibly exciting and enticing!

According to NASRA’s April 2026 survey of 132 major public pension plans, the long-term assumed rate of investment return is:

  • Average assumed return: 6.91%
  • Median assumed return: 7.00%
  • This has fallen substantially from an average of 7.94% in 2009.

As a result of today’s rapidly rising rate environment, our CFM optimization process can capture 94.1% of the annual target return, with little uncertainty. This YTM was achieved for a Florida-based public pension plan that was interested to see how CFM could work for them. Here’s what we can do:

  • Secure all the net benefits and expenses (B&E) through 9/30/56
  • The future value of those net B&E is $80.1 million
  • It takes only $31.7 million in assets to secure those FV B&E for a cost reduction on day-one of -60.4%
  • The YTM is 6.5%
  • The average quality is A-, with no exposure to BBB or BBB- bonds

Since we are building the portfolio net of forecasted contributions, those contributions are now known for the next 30-years. What a gift to the sponsor funding this program who no longer needs to be concerned about what annual surprises await. I have no idea where rates will go from here. They are currently not high, as I entered this industry when the 10-year Treasury note’s yield was >15%, and certainly not as low as we witnessed just 6-years ago, when that same note’s yield hit 0.52%. All I know is that the current environment is providing plan sponsors with the opportunity to secure the promised benefits at significant cost reduction with certainty (barring any defaults).

Why would you want to continue riding the performance rollercoaster when you can jump off knowing that you’ve won the funding game? CFM truly is a sleep-well-at-night strategy for both the sponsor and participant. We provide the pillow!