In a research note, UBS is forecasting that US companies would be contributing at least US$70 billion into their corporate pension plans in 2013. Nearly 40% of these funds would go into the purchase of bonds for income generation purposes.
This amount is lower than the previous year's US$80 billion. According to UBS analyst Boris Rjavinski, investments of this nature have performed fairly since 2012. The problem is these corporate pensions are underfunded and would have shortfalls because equity returns would not be able to meet their financial obligations over time. The underfunding is estimated between fifteen and twenty five percent.
According to Rjavinski, "Consequently, what happens to the liabilities has a magnified effect on the funded ratio. However, the shifts occur slowly so we doubt they will cause a major market move." He added that the estimated contributions from pension funds used to purchase bonds would put a ceiling on the ten to thirty year US Treasury and other investment grade corporate bonds.
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