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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: shades who wrote (52905)2/7/2006 9:03:28 AM
From: UncleBigs  Read Replies (1) of 110194
 
It's been said that pension plans have a voracious appetite for 30 year treasury bonds. However this makes little sense to me. Most pension plans from publicly traded companies are using an assumed annual rate of return of 8% to 10%. If they put a chunk of cash to work at 4.5% fixed for 30 years, the equity portion of their portfolio would have to earn outrageously high rates of return to balance out to 8% or higher.

I think pension plans have greatly increased their equity and risk exposures over the last few years in order to justify to their auditors their high rates of expected return. They can point to high long term equity returns as justification for their expectations. However money sunk in 30 year treasuries takes the guesswork out of it.

The 30 year auction will be very interesting. I'm not completely convinced the demand will be as strong as most seem to think.
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