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The impact of non-parallel yield shifts on defined benefit plan risk and LDI programs
April 2011
The liabilities of corporate defined benefit pension plans as well as their fixed income assets are directly impacted by changes in interest rates. However, changes in short-term interest rates can differ from changes in long-term rates (known as a non-parallel yield shift) — and this is more likely to happen when the yield curve is unusually steep, as it is at present (March 2011). This research explains what the implications of this are for plans following liability-driven investing (LDI) programs.
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For more information about our research, please contact David or Gerry:
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.
Date of first use: April 2011
USI-9389
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