BNY Mellon Investment Manager Sees Potential Scarcity of Long-Duration Bonds
NEW YORK, July 24, 2013 — A long corporate cash bond strategy coupled with tactics to synthetically protect bond values from higher interest rates might be a better strategy for pension plan sponsors than traditional core bond strategies that currently are in place, according to Standish, the Boston-based fixed income specialist for BNY Mellon.
Andrew Catalan, managing director of liability driven investing (LDI) strategies for Standish, made the comments to clients, consultants and other investment professionals during a webcast hosted earlier today.
Many pension funds are invested in core bond strategies benchmarked against the Barclays U.S. Aggregate Bond Index, which includes Treasury securities, U.S. government agency bonds, mortgaged-backed bonds, corporate bonds and a small amount of foreign bonds traded in the U.S.
A continuing rise in interest rates could cause core strategies to underperform a hedged corporate bond strategy, Standish investment professionals said during the webcast. However, Catalan added, "We are concerned that a massive move into long corporate bonds could spark tightening spreads resulting from the scarcity of these securities."
"Plan sponsors are benefiting from improved funded status as interest rates have increased and equity markets have rallied this year," said David Leduc, chief investment officer of Standish, and another presenter at the webcast. "Rates have finally moved to the low end of our fair value estimate and the increased volatility has opened up opportunities across fixed income markets."
The Barclays U.S. Aggregate Bond Index is a widely accepted, unmanaged total return index of corporate, government and government agency debt instruments, mortgage-backed securities and asset-backed securities with an average maturity of 1-10 years. The Barclays U.S. Aggregate Bond Index is a trademark of Barclays Capital and has been licensed for use by BNY Mellon (together with its affiliates and subsidiaries).
Standish Mellon Asset Management Company LLC, with approximately $165 billion of assets under management, provides investment management services across a broad spectrum of fixed income asset classes. These include corporate credit, emerging markets debt (dollar-denominated and local currency), core / core plus, tax–sensitive, short duration, stable value and opportunistic (U.S. and global) strategies. Standish also offers full service capabilities in insurance client strategies and liability driven investing. The firm includes assets managed by Standish personnel acting as dual officers of The Dreyfus Corporation and The Bank of New York Mellon and Alcentra NY, LLC personnel acting as dual officers of Standish.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at http://www.bnymellon.com/.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2013, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
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