NYC pensions told not to worry about yield curve flattening
The flattening of the U.S. Treasury yield curve can be a misleading signal of recession, New York City’s Bureau of Asset Management said during a pension fund presentation on Monday.
Speaking to the trustees of the five largest city pension funds during the Common Investment Meeting at the Dinkins building in Manhattan, Michael Haddad, the bureau’s deputy chief investment officer in public and tradable markets, said there were several reasons to believe that a recession wasn't expected in the near-term.
He said the three- to 18-month yield curve, a market-based expectations of future fed funds change, does not indicate recession. He noted that the term premium — additional yield required by investors for investing in long duration bonds — remains very low. Though the real fed funds rate historically has risen to 2% to 4% prior to beginning of recessions, he said, is not there now.
Turning to how the funds did in the second quarter, Alex Doñé, interim chief investment officer of the city’s five biggest public pension plans said performance was steady but positive in the second quarter.
The city's five main pension funds are the New York City Employees' Retirement System (NYCERS); the Teachers' Retirement System of the City of New York (TRS); the New York City Police Pension Fund Subchapter 2; New York City Fire Department Pension Fund Subchapter Two; and the New York City Board of Education Retirement System (BERS).
City Comptroller Scott Stringer is the custodian of the public pension funds, whose value is estimated at about $194 billion.
In the second quarter, the pension funds all showed growth rates; Fire rose 1.05%, Police 0.95%, BERS 0.81%, NYCERS 0.66% and TRS 0.57%. For the fiscal year to date, all pension funds showed growth. Fire increased 9.30%, Police 9.41%, BERS 10.37%, NYCERS 8.56% and TRS 8.12%.
The Bureau of Asset Management assists the funds in picking investment advisors and consultants. But investment policies are adopted by each of the five pension funds’ boards of trustees. And each of the boards establishes its own asset allocation policy and investment objectives. The funds invest in a variety of asset classes as well as making economically targeted investments.
The city’s general obligation bonds are rated Aa2 Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings. As of June 30, NYC’s outstanding GOs totaled $38.63 billion.