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The Curve Gets Even More Conundrum-ed
Posted By Barry Ritholtz On June 9, 2005 @ 6:26 am In Economy,Fixed Income/Interest Rates | Comments Disabled
The Penobscot Princess (having bolted Bear Stearns, but still running in stealth
mode) graces us once again with her elegant prose:
Pension Benefit Guaranty Corporation 
(PBGC) posted the latest on the sorry state of affairs, signaling that
US pension funds were underfunded by the egregious amount of $354 billion 
at the end of ’04. Compare to ’03 when the shortfall stood at $279 bil.
(I guess this is what happens when corporations seize upon the
advantage of lax reporting rules, but that’s another day, another
story. Still, just the thought of this big, gaping hole, should give
you the Willies.)
Look: The number of pension plans that are more than $50 million
short of promised benefit levels rose from 221 in 2000 to 1,108 in
2004. Those funds have an average of just 69 percent of promised
benefits on hand. Nice, eh?
Anyhow, the better point to be made from this latest charmer is the
front running-inducing nature of the report. Think the need by pension
funds to buy duration, then. Now think of all the fast money
understanding this in a flash and taking the opportunity to “get involved” in the parade.
It never ends, does it?
In other words,
underfunded pensions have to buy long bonds. But hedge funds know this,
and they "front run." That’s even more buyers (on top of China and
Japan) helping to drive rates lower . . .
UPDATE: June 9 2005 7:15am
The WSJ 
has also noticed the story — but its not the PBGC’s deficit that
should have us worried; Its the half a trillion in obligations that
should be scaring us . . .
Pension Agency’s Gap Is Expected To Balloon to $71 Billion in Decade 
THE WALL STREET JOURNAL, June 9, 2005; Page A4
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2005/06/the-curve-gets-even-more-conundrum-ed/
URLs in this post:
 Pension Benefit Guaranty Corporation: http://www.pbgc.gov/
 $354 billion: http://www.pbgc.gov/news/press_releases/2005/pr05_48.htm
 WSJ: http://online.wsj.com/article/0,,SB111828372703055067,00.html
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