Irish pension schemes suffer from fall in bond yields

Wednesday, 8th August 2012

Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE:AON), today released pension fund investment performance figures for the month of July 2012.

Central banks took action to restore some confidence in markets in July. The European Central Bank cut its benchmark interest rate to 0.75% and cut the overnight deposit rate to 0% in a bid to push some of the 800bn held in overnight deposits into the economy. The Federal Reserve also opted to extend "Operation Twist" through year end, although many traders still expect a further, more direct form, of QE3. Comments made by ECB president Mario Draghi were also positive for the Eurozone area as he iterated that the ECB is ready to do whatever is necessary to preserve the Euro. However the Euro still weakened over the month resulting in unhedged global equity mandates outperforming with the FTSE World up 4.5% while Eurozone equities lagged gaining 2.8% over the month.

"Despite these positive developments it remains to be seen whether this talk of commitment to preserve the Euro will materialise into concrete action that markets will appreciate" commented Denis Lyons, Senior Investment Consultant at Aon Hewitt. "As a result while these developments will have lowered tail risks in the short term there still remains significant threats to the Eurozone and global economy" added Lyons.

Core Eurozone bond yields fell over July despite Moody's issuing negative outlooks for the credit ratings of the Eurozone's AAA rated countries Germany, Netherlands and Luxembourg. Core countries continue to benefit as investors seek to avoid the increasingly risky peripherals.

"Irish defined benefit pension schemes continue to suffer from record low bond yields. The rise in core Eurozone bond yields seen towards the end of June were quickly eroded as investors once again focussed on the precarious condition of Spain's finances and the possible contagion effect that could result if a solution does not transpire" commented Lyons. " Assets gains over July were not enough to alleviate the stress put on funding levels by lower bond yields and many schemes will have seen a decrease in their funding levels as a result" added Lyons.

The Aon Hewitt Managed Fund Index, an index of traditional managed pension funds, gained 3.5% in July. The Index has delivered a positive return of 10.6% since the start of 2012.

Aon Hewitt will issue their full Multi Asset Fund Survey for July 2012 on Thursday, 2 August 2012.