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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 July Monthly Recap

Monthly Recap

Elevated inflation levels and expectations of tighter monetary policy framed the market environment for the month of June. Corporate spreads widened steadily through the month, following relative stability during the month of May.

Plan liability values decreased on a marked-to-market basis in June, extending their decline since the start of the year. Discount rates for a sample plan liability rose by 18 basis points based on the AA-rated spot curve and 9 basis points using the top-yielding curve. At month end, the top-yielding curve provided 30 basis points of additional yield versus the broader AA-rated universe.

Issuance levels were low through the month, with only six new bonds totaling notional $5.0B of notional value entered the index. Five bonds, with a total notional value of $3.95B, also entered the universe due to a single issuer’s credit upgrade. New bond entrants resulted in a slight upward shift in the short and medium segments of the curve. Thirteen bonds exited the universe due to other universe eligibility criteria.

Liability Impact

Liability Impact
Yield Curve Liability Value
Discount Rate
Liability Value
Discount Rate
Liability Value
Discount Rate
Yield Curve
$9,274 4.57% $9,501 4.39% $11,849 2.82%
Top Yielding
Accounting Curve
$8,918 4.87% $9,026 4.78% $11,192 3.21%
IRS Yield Curve $9,021 4.75% $9,557 4.32% $11,411 3.06%

Sources: Bloomberg. 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

Accounting Curve

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

Issuer Event Curve Impact
Corp Andina de Fomento Credit Upgrade
5 Bonds
The Corporacion Andina de Fomento, a Latin American development bank specializing in sustainable finance, had its foreign-currency credit rating upgraded mid-month. Five bonds, including a new issue, joined the universe as a result. The issues accounted for $5.2B in market value as of monthend, and traded slightly wide of peers with similar maturities.
National Australia Bank, Ltd. NY New Issue
1 Bond
National Australia Bank Limited of New York, a U.S. subsidiary of the global National Australia Bank, issued a 5 year bond early in the month. The $1.25B issue traded substantially wide of peers at monthend, which put slight upward pressure on the AA-rated curve.

Sources: Bloomberg. 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
June 2022        
   Count 6 5 -- 13
   Market Value ($M) $4,984 $3,177 -- $17,538
   Market Value (%) 0.80% 0.56% -- 3.04%
2022 YTD        
   Count 48 8 -- 39
   Market Value ($M) $38,039 $8,971 -- $46,447
   Market Value (%) 6.59% 1.55% -- 8.04%

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

Top Yielding Accounting Curve

Top Yielding Accounting Curve

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

IRS Curve

IRS Curve

Sources: IRS and T. Rowe Price 

Dates AAA Corporate OAS
(basis points)
AA Corporate OAS A Corporate OAS BBB Corporate OAS
May Monthly Average 90 73 112 167
June 1, 2022 80 68 102 159
June 15, 2022 86 73 109 169
June 30, 2022 97 79 122 188
June Monthly Average 87 73 111 170

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

One-Year Rolling Returns and Tracking Error

One Year Rolling Returns and Tracking Error
  June 2022 Return YTD Total Return Annual Tracking Error Relative to Liability Average Monthly Return Difference from Liability
Hypothetical Sample Plan Liability -2.06% -19.50% -- --
Bloomberg Aggregate Index -1.57 -10.35 6.65 1.45
Bloomberg Long Credit Index -4.15 -22.40 4.37 0.90
Bloomberg Long Gov/Credit Index -2.98 -21.89 3.14 0.63
Hypothetical T. Rowe Price
Custom Benchmark
-1.71 -18.21 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 June 30, 2022.

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 2022, 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 “fixed-income 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 Bloomberg 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


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