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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

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Pension Curve Insider: LDI Solutions October Monthly Recap

Monthly Recap

Intermediate-term Treasury yields rose during the month of October, while corporate spreads remained stable through the month. The discount rate based on the AA-rated spot curve for a sample plan liability decreased by 8 basis points, with a similar decrease of 6 basis points for the top yielding curve.   

On a marked-to-market basis, plan liability values increased slightly as discount rates declined. Rates based on the AA-curve remain well below their calendar year peak in March. With relatively stable spreads through the month, the top-yielding curve provided 36 basis points of additional yield versus the broader AA-rated universe.

October experienced a jump in issuance inactivity, with seventeen new bonds from 10 issuers added to the AA-rated index. About a third of the new issues were longer-dated bonds, with maturities of 20 years or more. Curve impact from new issues was minimal.

Otherwise, the index saw limited turnover. No bonds entered or departed the universe due to credit-ratings changes, though a handful of bonds exited due to tenders and maturation.

Liability Impact

Bar chart showing liability value and iscount rates from September 2020 to 2021
Yield Curve Liability Value
Discount Rate
Liability Value
Discount Rate
Liability Value
Discount Rate
Yield Curve
$11,913 2.78% $11,776 2.86% $12,288 2.57%
Top Yielding
Accounting Curve
$11,293 3.14% $11,199 3.20% $11,456 3.04%
IRS Yield Curve $11,789 2.84% $11,765 2.96% $12,182 2.62%

Sources: Bloomberg Barclays. Bloomberg Index Services Ltd. Copyright 2021, Bloomberg Index Services Ltd. Used with permission. IRS, and T. Rowe Price. Sample plan cash flows have a liability of $10,000 at 4.0% discount rate.

Accounting Curve

Dot graph showing spot yield ranges by maturity in years

Sources: Bloomberg Barclays. Bloomberg Index Services Ltd. Copyright 2021, Bloomberg Index Services Ltd. Used with permission. T. Rowe Price.

Issuer Event Curve Impact
TSMC Arizona New Issue
(3 Bonds)

TSMC Arizona, a subsidiary of Taiwan Semiconductor Manufacturing Company, issued three bonds totaling $3.25B notional during the month of October. The bonds were spread out over ten-to-thirty-year maturities.

The semiconductor manufacturer raised funds for a fabrication plant in Phoenix, Arizona, which is currently under construction. The issues traded tighter than bonds of similar maturity in the AA-credit universe and represented $3.4B of market value at month end.

The Korea Development Bank New Issues 
(3 Bonds)
The Korea Development Bank (KDB Bank) issued three bonds during October, with maturities ranging from 2025 to 2031 and a month end market value of $1.5B. Funds from the ESG-focused notes are intended for climate-oriented projects.
Chevron Exits
(4 Bonds)
At the start of October, Chevron announced a tender offer to purchase up to $2.0B of four outstanding bonds. The energy company had purchased about $1.2B by the end of the month, bringing each issue below the AA index’s minimum outstanding value for inclusion. 

Sources: Bloomberg Barclays. Bloomberg Index Services Ltd. Copyright 2021, Bloomberg Index Services Ltd. Used with permission. T. Rowe Price.

  New Issues Other Bonds Entering Downgrades Other Bonds Exiting
October 2021        
   Count 17 -- -- 8
   Market Value ($M) $9,517 -- -- $4,595
   Market Value (%) 1.37% -- -- 0.66%
2021 YTD        
   Count 89 41 36 17
   Market Value ($M) $82,866 $66,452 $33,905 $20,510
   Market Value (%) 11.90% 9.55% 4.88% 2.95%

Sources: Bloomberg Barclays. Bloomberg Index Services Ltd. Copyright 2021, Bloomberg Index Services Ltd. Used with permission. T. Rowe Price.

Top Yielding Accounting Curve

Chart illustrating top-yielding accounts

IRS Curve

Chart of IRS Curve

Sources: IRS and T. Rowe Price

Dates AAA Corporate OAS
(basis points)
AA Corporate OAS A Corporate OAS BBB Corporate OAS
September Monthly Average 65 46 66 104
October 1, 2021 63 44 65 103
October 15, 2021 60 48 69 106
October 30, 2021 62 44 65 103
October Monthly Average 63 45 67 104

Sources: Bloomberg Barclays. Bloomberg Index Services Ltd. Copyright 2021, Bloomberg Index Services Ltd. Used with permission. T. Rowe Price.

One-Year Rolling Returns and Tracking Error

Chart illustrating one year rolling returns
  October 2021 Return YTD Total Return Annual Tracking Error Relative to Liability Average Monthly Return Difference from Liability
Hypothetical Sample Plan Liability -1.36% -1.20% NA NA
BBgBarc Aggregate Index -0.03% -1.58% 6.61% 1.44%
BBgBarc Long Credit Index 1.48% -1.22% 4.38% 0.90%
BBgBarc Long Gov/Credit Index 1.63% -3.00% 3.19% 0.64%
Hypothetical T. Rowe Price
Custom Benchmark
1.17% -0.65% 2.02% 0.33%

Sources: Bloomberg Index Services Ltd., T. Rowe Price; Analysis by T. Rowe Price. Performance shown in graph and tables above shown from February 1, 2005 through October 31, 2021.

Past performance cannot guarantee future results. Custom Benchmark returns do not reflect the deduction of management fees. Please refer to the disclosure at the end of the article for important additional information.

Copyright 2021, Bloomberg Index Services Ltd. Used with permission.


IRS Yield Curve: Plan sponsors of qualified defined benefit pension plans use this yield curve to determine funding requirements per IRS regulations. These funding requirements are disclosed on form 5500 annually. Yields on AAA, AA, and A corporate securities determine the yield curve for discounting purposes. The yield curve is not a marked-to-market curve representing any single date, but rather an average yield over the course of the entire month. For more information on the IRS methodology, please see and

Accounting Yield Curve: US GAAP requires pension plan sponsors to disclose pension obligations using “fixedincome debt securities that receive one of the two highest ratings given by a recognized ratings agency”. As a proxy for bonds useable for accounting purposes, we use the constituents of BBgBarc AA credit universe to develop the accounting yield curve shown. Please see for more information.

Top Yielding Curve: Since the US GAAP rules allow the use of a fairly broad range of securities for accounting purposes, some plan sponsors use an optimized yield curve approach to value their pension liabilities on the disclosure dates. Bonds trading at higher yields than other bonds of similar maturity tend to be used for this purpose. To quantify the effectiveness of this approach, T. Rowe Price developed a yield curve using the highest yielding bonds designed to meet SEC requirements at each node.

Annual Tracking Error Relative to Liability: Calculated as the standard deviation of return differences between a fixed income index and a set of cash flows discounted using the accounting yield curve. The liability return has two components: an interest cost component analogous to roll return on a bond, and yield change component analogous to price return on a bond. The table shows annualized ex-post tracking error.

Average Monthly Return Difference: Similar to the tracking error metric, this metric demonstrates how closely a fixed income benchmark tracks a set of liability returns. We calculate this measure by simply averaging the difference in returns over the period shown.

Sample Plan Liability: Pension plan sponsors must account for the cost of their retirement plan on their financial statements. The amount of this liability can fluctuate over time based on several factors, including benefits earned, benefits paid out, mortality experience, and most significantly, interest rates. The Sample Plan is intended to be a representative defined benefit pension plan and does not reflect the cash flows from any specific plan.

T. Rowe Price Custom Benchmark: An index of fixed income securities created using T. Rowe Price proprietary methodology that attempts to replicate interest rate exposures embedded in a pension plan’s liability structure. To learn more, please visit


This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

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