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Pension schemes hit by bond yield fall

Tuesday, June 03 17:00:21

Managed Irish pension funds continued to rise in May but the record fall in bond yields affected their bottom lines.

The Aon Hewitt Managed Fund Index, an index of traditional Irish pension managed funds, increased by 2.72pc in May. This has contributed to the index delivering a positive return of 6.05pc since the beginning of the year.

Global equity markets rose in May with the FTSE All World Index increasing +3.9pc in Euro terms. Japan was the best performing region in Euro terms, as the FTSE Japan Index returned +5.8pc.

The S and P 500 Index posted a number of fresh record highs towards the end of May as global stock markets strengthened on positive economic data and indications that the US Federal Reserve is in little hurry to raise interest rates. This coupled with market focus on expected European Central Bank monetary easing fuelled market gains.

"Equity markets have strengthened on the expectation that the ECB will loosen monetary policy further following the meeting on the 5th of June in an effort to spur higher inflation in the region. Eurozone government bonds also benefitted from this expected policy, as government bond yields moved even lower over the month," commented Cathal Fehily, Investment Consultant with Aon Hewitt.

Eurozone government bonds experienced a strong month again in May, encouraged by expected accommodative monetary conditions. The German 10 year Bund yield fell 11 bps to 1.36pc while the French 10 year yield fell 18 bps to 1.77pc. Peripheral Eurozone bond yields also fell over the month in line with core yields.

"Irish Defined Benefit pension schemes will have seen their liabilities rise again in May given the fall in core Eurozone government bond yields. However, strong asset performance over the month should compensate for this increase in liabilities and schemes will generally see a small improvement in their funding levels," Added Mr Fehily.

Aon Hewitt will issue their full Multi Asset Fund Survey for May 2014 tomorrow.