The recent fall in bond prices and consequent rise in yields will come as a boon to deficit-prone pension funds.
Future pension obligations are discounted by a rate derived from bond market yields. A rise in the discount rate shrinks those liabilities, and deficits also shrink in the absence of a material fall in the value of the fund’s assets.
The other big beneficiaries of the rise in bond yields are value investors. They have been bruised for years thanks to their lack of exposure to the big tech stocks that have driven equity markets to heady levels.
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