LDI Quarterly Update: 2Q23

LDI Quarterly Update: 2Q23

Time to read: Minutes
Oleg Gershkovich

Oleg Gershkovich, A.S.A., M.A.A.A.

LDI Solutions Strategist

Brett Cornwell

Brett Cornwell, CFA

Client Portfolio Manager, Fixed Income

U.S. pension funded status improved in 2Q23 to its highest level since 2007, increasing by more than 5% to 107% amid declining liabilities and increasing assets.

Notes on the quarter

  • Funded status for U.S. pension plans improved in 2Q by over five percentage points, from 102% in 1Q to 107% — the highest level since 2007.
  • The curve inverted a touch more, with the 10Y UST and 30Y UST increasing 33 bp and 16 bp, respectively, on the quarter.
  • Credit spreads narrowed slightly. The net result of rate and spread changes was a 20 bp increase in the discount rate. For a plan with a duration of 12 years, this translates to a 2.4% decrease in liability.
  • The S&P 500 had a total return of nearly 9% for the quarter, further contributing to the funded status improvement. 
  • Pension risk transfers print new mega deal: AT&T announced an $8.1B transfer in May, the third-largest in buyout history after GM’s $26B deal in 2012 and IBMs' $16B transaction in 2022. As buyouts occur, a residual plan’s liability profile changes, warranting a review of the plan’s asset allocation, especially given higher rates across fixed income.
Aggregate funded status for U.S. pension plans
Illustration for a 50/50 fixed income/equity portfolio with a duration of 12
Aggregate funded status for U.S. pension plans

Source: Voya IM calculations, FTSE, S&P.

1 Growth assets based on S&P 500 return of 8.7%; hedging assets (which match liability duration) had a 2.4% loss, similar to liabilities, by design.

2 Liabilities declined 2.4% due to 20 bp increase in rates and plan duration of 12 years.

Funded status evolution of U.S. pension plans
Funded status evolution of U.S. pension plans

As of 06/30/23. Source: Milliman, S&P, 10-K data, Voya IM.


Source: FTSE, Barclays Live, ICE Index Platform, S&P. 3) See back page for index definitions.

3 Based on FTSE’s “short” duration plan, approximately 11 years.

Spot rate curves
Spot rate curves

Source: ICE Index Platform, FTSE pension discount curve.

  • The U.S. Treasury spot rate curve is more inverted than the FTSE pension discount curve as of 06/30/23.
  • For the 15-year tenor, the UST spot rate is lower as of 06/30/23 versus 12/31/22.
  • Similarly, for the 15-year tenor, the AA rated corporate bond spot rate is lower as of 06/30/23 versus 12/31/22.

A note about risks

Examples of LDI (liability-driven investing) performance included in this material are for illustrative purposes only. Liability valuations can increase due to falling interest rates or credit spreads, among other things, as the present value of future obligations increases with falling rates and falling spreads. Liabilities can also increase due to actual demographic experience differing from expected future experience assumed by the plan’s actuary. Diversification neither assures nor guarantees better absolute performance or relative performance versus a pension plan’s liabilities. In addition, investing in alternative investment products such as derivatives can increase the risk and volatility in an investment portfolio. Because investing involves risk to principal, positive results and the achievement of an investor’s goals are not guaranteed. There are no assurances that any investment strategy will be profitable on an absolute basis or relative to the pension plan’s liabilities. Information contained herein should not be construed as comprehensive investment advice. For comprehensive investment advice, please consult a financial professional.



Past performance is no guarantee of future results. This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or events may differ materially from those in such statements. Any opinions, projections, forecasts and forward looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information.

The opinions, views and information expressed in this presentation regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Portfolio holdings are fluid and are subject to daily change based on market conditions and other factors.

Index definitions

Index returns do not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index. The ICE BofA AAA-A U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Master Index, which tracks the performance of USD-denominated investment grade rated corporate debt publicly issued in the U.S. domestic market. This subset includes all securities with a given investment grade rating of AAA through A. The Bloomberg U.S. Long Credit Index represents the long component of the Bloomberg U.S. Credit Index, which includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Bloomberg U.S. Long Government/Credit Index represents the long component of the Bloomberg U.S. Government/Credit Index, which includes Treasuries, agencies and publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The S&P 500 Index consists of approximately 500 leading U.S. companies with approximately 75% coverage of the U.S. stock market capitalization.