Pension Indicator Updated for July 31, 2022

July Fireworks

By: Brian Hrabak, CFA, Clearstead

Since peaking near 3.5% in mid-June, the 10-year U.S. Treasury yield has declined over 80 basis points to 2.65% as markets continue to digest the Federal Reserve’s growth and inflation policy conundrum1. Directionally, the trend in core CPI seems to continue favoring a moderating inflation backdrop, yet the influences of volatile food and energy prices appear to keep headline inflation and CPI at decades’ high levels. Even though payroll employment growth remains strong and consumer balance sheets, including excess savings, are healthy, elevated prices at the pump and rising grocery bills have consumers in a sour mood. 

Caught in the middle of this tug-of-war, the Federal Reserve has clearly come down on the side of fighting inflation, hiking its fed funds rate by 75 bps for the second consecutive month. In the Fed’s press release following their July 27th FOMC meeting, they clearly stated their goal, “The Committee is strongly committed to returning inflation to its 2 percent objective.”2

US equity markets traded sharply up in July, particularly in the final two weeks of the month, with the S&P 500 Index gaining 9.2% for the month1. International equities lagged US markets in part because the prospect of a recession in Europe has become more likely as Russia further restricts gas exports to Western Europe.

Although the Fed’s increase of the fed funds rate caused short-term rates to rise, further out, the interest rate curve significantly declined as US Treasury 10-year yields declined by 36 basis points to end the month at 2.65%1. Due to the drop in interest rates and a tightening of credit spreads, both investment grade and high yield bonds resulted in gains that essentially reversed June declines. The Bloomberg Aggregate Bond Index returned 2.4% while the Bloomberg Long Govt/Credit Index returned 3.8% for July1.

Portfolio returns were very strong and almost a mirror opposite of June with results between +4.8% and +5.3%, leaving funded statuses predominantly unchanged for the month. The large decline in interest rates resulted in a significant liability increase of between +4.1% and +6.3% for the month. Despite the increased volatility in risk assets this year, plan sponsors find themselves in an improved funded status position compared to year-end.

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Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. Performance data represents past performance.  Past performance is not indicative of future results

1Bloomberg

2www.federalreserve.org

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) 1.2% 0.1% -2.7% -5.6%
 Recently Frozen 6.4% 5.3% 2.3% -0.8%
 Ongoing Traditional 12.1% 11.0% 7.8% 4.6%
 Cash Balance 2.2% 1.2% -1.7% -4.7%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 0.9% 0.5% 0.4% 0.5%
 Recently Frozen -0.2% -0.6% -0.7% -0.6%
 Ongoing Traditional -1.4% -1.8% -1.9% -1.8%
 Cash Balance 0.5% 0.1% 0.0% 0.0%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 5.1% 3.3% -0.7% -5.0%
 Recently Frozen 10.6% 8.7% 4.4% 0.0%
 Ongoing Traditional
16.7% 14.6% 10.1% 5.5%
 Cash Balance 6.4% 4.5% 0.4% -3.8%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure