NEW YORK (Reuters) - U.S. pensions are expected to shift more money into bonds and out of equities to rebalance their holdings at month-end in the wake of strong gains in the stock market in January, Wells Fargo strategists said on Monday.
The possible increased allocation into bonds comes as global bond yields have been rising on strengthening business activities across the world and expectations of reduced stimulus from major central banks.
On Monday, the benchmark 10-year Treasury yield touched 2.727 percent, the highest since April 2014, Reuters data showed.
Higher yields would help provide pensions with a stable source of income to meet payouts to retirees.
“Rising long-term yields can bring a considerable relief to private pensions,” the Wells Fargo strategists wrote based their estimates on month-end allocation changes.
Corporate pensions have struggled from historic low yields which have made their existing pension obligations expensive. Their average pension funding gap, future obligations versus current investments, has remained wide despite the run-up in stock prices.
Retirement plans may need to add $16 billion in fixed income and to reduce up to $20 billion in equities for their month-end asset-allocation rebalancing, they wrote in a research note.
Corporate pensions could pocket some gains from Wall Street’s blistering start to 2018 with the S&P 500 gaining 7 percent in January. They could put the money in less risky Treasuries.
“The $15-20 billion asset allocation shift is quite sizable in the context of recent experience,” the Wells Fargo strategists wrote. “The size of the January shift is a testament to the large gap in performance between equities and Treasuries at the start of 2018.”
Reporting by Richard Leong; Editing by David Gregorio