May 2020: U.S. Monthly Pension Monitor

Funded status edged down as discount rates continued to fall

Despite another positive month of asset gains, lower discount rates decreased funded status in May

  • Average funded status was down by 0.5% over the month - assets returned 1.9%, offset by a 2.5% increase in liabilities.
  • Equities continued to rebound from March lows - the S&P 500 rose another 4.5% while the MSCI AW ex-U.S. increased 3.3%.
Market Watch Dec 2018 Dec 2019 April 2020 May 2020
Funded Status1 87% 90% 85% 84%
CITI Discount Rate2 4.05% 3.01% 2.54% 2.46%
Long Credit Yield2 4.89% 3.63% 3.41% 3.31%
U.S. 30Y TSY Yield 3.02% 2.38% 1.28% 1.41%
S&P 500 2,507 3,231 2,912 3,044
  • The yield on the Bloomberg Barclays Long Credit Index declined by 10 basis points (bps) – an 18 bps tightening of long IG credit spreads was somewhat offset by rising Treasury yields. The U.S. 30-year Treasury yield rose by 13 bps over the month.
  • Within IG credit, spreads continued to narrow - as credit markets continue to stabilize, IG spreads continued to rally, finishing May at 164 bps, a 27 bps decline month over month.
  • Continued influx of U.S. corporate debt – issuance YTD exceeded $1TN, a figure not surpassed until November in 2019.

Long credit spreads vs. long Treasury yields

Spotlight: Evolving the LDI portfolio – 20 year bonds

  • In May, the U.S. government issued 20-year maturity Treasuries for the first time since 1986. The initial auction was for $20BN, with an additional $34BN expected in June and July.
  • In the IG corporate bond market, the amount outstanding in 20-year bonds (14% of IG market) is close to the total outstanding in 30-year bonds (18% of IG market).
    • However, the lack of a benchmark 20-year Treasury has historically meant lower issuance and trading in 20-year corporate bonds compared to 30-year corporate bonds. Consequently, 20-year corporates trade with an illiquidity discount as investors demand additional relative spread as compensation.
  • The illiquidity discount is expected to gradually disappear as the new benchmark 20-year Treasury attracts more new issuance and trading in 20-year corporates.
    • Following the 20-year Treasury issuance we saw corporate issuers follow suit with Pfizer and other large corporations issuing 20-year maturity debt.
  • For defined benefit pensions, these changes could have a number of impacts. We may see pricing movements in the 20-year space in the short term, which nimble active managers could look to exploit. Over the longer term, the new 20-year corporates could help improve curve matching for plan sponsors looking to fine tune their liability hedging portfolios.

Milliman Pension Funding Index

¹The April 2020 funded status figure reflects Milliman’s reconciliation from 84% to 85% provided in the May 2020 publication.
²The CITI discount rate corresponds to the FTSE short pension liability index. The Long Credit yield corresponds to the Bloomberg Barclays Long Credit Index.

About SLC Management

SLC Management is the brand name for the institutional asset management business of Sun Life Financial Inc. (“Sun Life”) under which Sun Life Capital Management (U.S.) LLC in the United States, and Sun Life Capital Management (Canada) Inc. in Canada operate.

Sun Life Capital Management (Canada) Inc. is a Canadian registered portfolio manager, investment fund manager, exempt market dealer and in Ontario, a commodity trading manager. Sun Life Capital Management (U.S.) LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser and is also a Commodity Trading Advisor and Commodity Pool Operator registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and Members of the National Futures Association.

BentallGreenOak, InfraRed Capital Partners (InfraRed), Crescent Capital Group (Crescent), and Advisors Asset Management are also part of SLC Management.

BentallGreenOak is a global real estate investment management advisor and a provider of real estate services. In the U.S., real estate mandates are offered by BentallGreenOak (U.S.) Limited Partnership, who is registered with the SEC as an investment adviser, or Sun Life Institutional Distributors (U.S.) LLC, an SEC registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”) . In Canada, real estate mandates are offered by BentallGreenOak (Canada) Limited Partnership, BGO Capital (Canada) Inc. or Sun Life Capital Management (Canada) Inc. BGO Capital (Canada) Inc. is a Canadian registered portfolio manager and exempt market dealer and is registered as an investment fund manager in British Columbia, Ontario and Quebec.

InfraRed Capital Partners is an international investment manager focused on infrastructure. Operating worldwide, InfraRed manages equity capital in multiple private and listed funds, primarily for institutional investors across the globe. InfraRed Capital Partners Ltd. is authorized and regulated in the UK by the Financial Conduct Authority.

Crescent Capital Group is a global alternative credit investment asset manager registered with the U.S. Securities and Exchange Commission as an investment adviser. Crescent provides private credit financing (including senior, unitranche and junior debt) to middle-market companies in the U.S. and Europe, and invests in high-yield bonds and broadly syndicated loans.

Securities will only be offered and sold in compliance with applicable securities laws.

AAM is an independent U.S. retail distribution firm that provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers.

Website content

The content of this website is intended for institutional investors only. It is not for retail use or distribution to individual investors. All investments involve risk including the possible loss of capital. All asset classes have associated risks. Certain asset classes are speculative, can include a high degree of risk and are suitable only for long-term investment. Further information available upon request. This website is for informational and educational purposes only. Past performance is not a guarantee of future results.

The information contained in this website is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained on this website. The assets under management (AUM) represent the combined AUM of Sun Life Capital Management (Canada) Inc., Sun Life Capital Management (U.S) LLC, BentallGreenOak, Crescent Capital Group, InfraRed Capital Partners, and Advisors Asset Management.

AUM as of March 31, 2025. Total firm AUM includes approximately $8B in cash, other, unfunded commitments, and Advisors Asset Management equity. Total firm AUM excludes $11 billion in assets under administration by AAM.

Currency conversion rate: USD $1.00 CAD $1.4387 as of March 31, 2025.

SLC Management Newsroom: SLC-20221101-2566004

UK Tax Strategy - InfraRed (UK) Holdco 2020 Limited

InfraRed (UK) Holdco 2020 Ltd is the UK holding company of InfraRed Partners LLP and a subsidiary of Sun Life (U.S.) Holdco 2020 Inc, which has its headquarters in the U.S. The company was incorporated to purchase InfraRed Partners LLP and acts solely as a passive holding company. The Tax Strategy for the InfraRed Holdco Group sets out our approach to the management of InfraRed Holdco Group UK tax affairs in supporting business activities in the UK. 

This UK tax strategy is published in accordance with the requirements set out in Schedule 19 of Finance Act 2016. The strategy, which has been approved by the Board of Directors of InfraRed (UK) Holdco 2020 Ltd, is effective for the period ending 31 December 2024. It applies to InfraRed (UK) Holdco 2020 Ltd and its dormant subsidiary Sun Life (UK) Designated Member Ltd, referred to as the “InfraRed Holdco Group”. InfraRed Holdco Group.