Liability-Driven Investing (LDI): Finding a Shorter, Different Path

The rise in corporate bond yields over the past few years caused several chain reactions affecting corporate defined benefit plans:

• The average plans’ duration has decreased.
• The average funded status has vastly improved (helped by strong equity returns), racing through glidepath triggers and requiring increased fixed income allocations.
• Higher fixed income allocations are now driving two asset allocation decisions within fixed income:
  • The desire for alternatives to corporate credit - the top 10 issuers in the Bloomberg US Long Corporate and Long Credit Bond Indices represent ~15% of each Index.
  • A need to focus on hedging intermediate duration liabilities to mitigate curve risk.

We believe plan sponsors can address these needs with an allocation to an Intermediate Aggregate strategy - the plan receives exposure to a broader opportunity set with diversification from the high-quality securitized space.

End Notes
Sources:
Jennison Associates LLC

Moody’s Investor Services, Inc.

eVestment

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All data provided is as of 9/30/2025.

There is no guarantee our objectives will be met. All investments contain risk, including possible loss of principal. The strategy may vary significantly from the benchmark in several ways including, but not limited to, sector and issuer weightings, portfolio characteristics, and security types. Diversification does not protect an investor from market risk and does not ensure a profit or guarantee against a loss.

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Market Definitions:
Beta – a measure of the volatility of a security or portfolio compared to the market as a whole.
Duration – a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.
Excess Return – is the additional return generated by the portfolio or composite relative to its benchmark.
Maturity – the date on which the life of a transaction or financial instrument ends, after which it must either be renewed or it will cease to exist. The term is most commonly used in relation to bonds but is also used for deposits, currencies, interest rate and commodity swaps, options, loans, and other transactions.
Option Adjusted Spread (OAS) – the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.
Sharpe Ratio – a measure of an investment’s risk-adjusted performance, calculated by comparing its return to that of a risk-free asset.
Standard Deviation – a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.
To Be Announced (TBA) – a term that describes the forward-settling of mortgage-backed securities trades, where the details are not known until later.
Yield – a general term that relates to the return on the capital you invest in a bond.
Yield to Worst (YTW) – a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting.

Benchmark Definitions:
Bloomberg US Credit Bond Index includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The index includes both corporate and non-corporate sectors. The corporate sectors are Industrial, Utility, and Finance, which include both U.S. and non-U.S. corporations. The non-corporate sectors are Sovereign, Supranational, Foreign Agency, and Foreign Local Government.
Bloomberg US Intermediate Credit Bond Index includes securities in the intermediate maturity range of the US Credit Bond Index.
Bloomberg US Long Credit Bond Index includes securities in the long maturity range of the US Credit Bond Index.
Bloomberg US Corporate Bond Index is the corporate component of the US Credit Bond Index. The corporate sectors are Industrial, Utility, and Finance, which include both U.S. and non-U.S. corporations.
Bloomberg US Long Corporate Bond Index includes securities in the long maturity range of the US Corporate Bond Index.
Bloomberg US Securitized Index is comprised of the Bloomberg US Mortgage Backed Securities Index, the Bloomberg US Asset Backed Securities Index and the Bloomberg US CMBS Index.
Bloomberg US Mortgage Backed Securities Index is a component of the US Aggregate Index. The MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The MBS Index is formed by grouping the universe of over 600,000 individual fixed rate MBS pools into approximately 3,500 generic aggregates. Each aggregate is a proxy for the outstanding pools for a given agency, program,
issue year, and coupon. The index maturity and liquidity criteria are then applied to these aggregates to determine which qualify for inclusion in the index. About 600 of these generic aggregates meet the criteria. The aggregates included in the index are priced daily using a matrix pricing routine based on trader price quotations by agency, program, coupon, and degree of seasoning.
Bloomberg US Asset Backed Securities Index is a component of the US Aggregate Index. The ABS Index has three subsectors: Credit and charge cards, Autos, and Utility. The index includes pass-through, bullet, and controlled amortization structures. The ABS Index includes only the senior class of each ABS issue and the ERISA-eligible B and C tranche.
Bloomberg US CMBS Index has been designed to measure the performance of the commercial mortgage-backed securities (CMBS) market.
Bloomberg US Treasury Bond Index includes public obligations of the US Treasury with a remaining maturity of one year or more. The index is the US Treasury component of the US Government Bond Index.
Bloomberg US Intermediate Treasury Bond Index includes securities in the intermediate maturity range of the US Treasury Bond Index.
Bloomberg US Aggregate Bond Index includes securities that are US domestic, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Bloomberg US Intermediate Aggregate Bond Index includes securities in the intermediate maturity range of the US Aggregate Bond Index.
Standard & Poor’s 500 (S&P 500) Index is a market capitalization-weighted index of 500 companies primarily traded on the New York Stock Exchange. 

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