LIABILITY DRIVEN INVESTING

Your map of the LDI opportunity set

  • Corporate defined benefit pension plan sponsors pursuing LDI generally turn to the U.S. long bond market to hedge long-term liabilities.
  • A detailed understanding of this $3.5 trillion market is critical for crafting an effective investment strategy.
  • Our new map of the market can help sponsors navigate the opportunities and challenges of LDI implementation.

Explore long bonds
See the U.S. long bond market’s components and credit quality as we build the map from the ground up

Source: Barclays POINT data ©2019 Barclays Capital Inc. Used with permission. POINT is a registered trademark of Barclays Capital Inc. Data in market value terms as of 3/31/19. Split by index, then credit quality, then sector. 

Please see the bottom of the page for further disclosure.

Fast facts from our map of the U.S. long bond universe


 

“We believe that a map of the long bond market can facilitate a productive benchmarking dialogue and ultimately enhance decision-making.”

Colyar Pridgen
Senior LDI Strategist, Capital Group

Questions we can help you consider: 

Is the Bloomberg Barclays U.S. Long Government/Credit Index the best benchmark for my plan?

Could more nuanced benchmark construction offer improvements in liability matching or other investment goals?

Should bonds outside of the long government/credit universe play a role within my hedging portfolio?

Call us today to discuss how to put this idea into action.

800-421-0870 (Specific to LDI)

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.  

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

All Capital Group trademarks referenced are registered trademarks owned by The Capital Group Companies, Inc. or an affiliated company. All other company and product names mentioned are the property of their respective companies.

Past results are not predictive of results in future periods.

The return of principal for bond portfolios and for portfolios with significant underlying bond holdings is not guaranteed. Investments are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

“Long STRIPS” refers to U.S. Treasury STRIPS with maturities of at least 10 years, which are not part of the Bloomberg Barclays U.S. Long Government/Credit index. While depicted as a subset of long Treasury in order to offer a broad sense of the relative size of an important component of the universe of physical hedging instruments (and to avoid potentially double-counting stripped Treasuries), note that STRIPS are not in fact a component or subset of Treasuries. Note also that because Long STRIPS contain no cash flows before 10 years (while long Treasury, on the other hand, does implicitly incorporate shorter-dated cash flows in the form of coupon payments), there is some measure of inconsistency worth noting (e.g., arguably, technically nine-year coupon STRIPS could be included here, to the extent that they are created from coupons of Long Treasuries).

“Sovereign, etc.” refers to the aggregated-for-convenience sectors of sovereign (the largest sector included herein), foreign agencies (which have similar quality distribution though skewed somewhat higher), and supranational (a relatively small sector which in the long end is entirely AAA-rated bonds). The other noncorporate credit sector, shown distinctly, is described as “local authorities,” which is technically the Class 2 description for the foreign local governments sector.

Before 6/30/2000, many credits that today would be categorized as long corporate were instead a component of the long noncorporate credit universe, with the legacy sector name foreign corporations. These securities have been included in the “Sovereign, etc.” category for periods prior to 6/30/2000.

Before 6/30/2000, many credits that today would be categorized in the foreign local governments sector (which we call “local authorities”) were instead identified by the legacy sector name Canadian. These securities have been included under “local authorities” in our historic figures.