Managing interest rate and inflation risk
Physical gilts have generally offered a yield pick-up over equivalent swap-based exposure. Yet this premium has declined over the past two years as pension funds have continued to invest heavily in gilts to match liabilities. Let's consider how much this premium might have to fall for investors to swap bonds for swaps.
Buying cars and protecting yourself from equity market falls may not appear to have much in common. But you might choose to do both if you had the option…
It is increasingly clear that running RPI-linked assets versus CPI-linked liabilities can pose material risks to pension schemes. But opportunities to mitigate these risks are also becoming more available.
As seasoned trustees of pension schemes will know, it’s possible to target better long-term outcomes by actively switching between gilts and interest rate swaps. But could it also sometimes be prudent to make changes within your swap exposure?
Are Father Ted and low interest rates both for real?
What do inflation-linked pension benefit schemes and Texan cowboys have in common? We look at a source of scheme risk that many trustees may not have considered: limited price indexation risk. This could become increasingly important for trustees as their schemes progress along their de-risking glidepaths.
If your base case is that interest rates will rise faster than is already priced in, how much should you under-hedge? The answer could be less than you think.
Are SeLFIES (Standard of Living Indexed, Forward-starting Income-only Securities) a potential alternative to other retirement investments?