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US TSYS/RESEARCH: BA/ML head of US rates strategy Shyam Rajan said on
pension/bonds interaction that "a year ago, we identified that the behavior of
defined-benefit pensions would be a critical driver of rates markets.
Specifically, we isolated five reasons (three macro, two pension specific) why a
change in pension behavior was imminent and would have a significant implication
on curves and swap spreads.
- He said that "since then, there has been a record amount of demand for
long-dated STRIPS (Separate Treasuries) (around $35bn in the last year) from
this community, partly driving a significant widening in long end swap spreads
and a flattening of the curve. Admittedly, the macro environment has been better
than we expected, but the pension-specific reasons, higher PBGC premiums and low
corporate yields, have indeed been a game changer for the industry." He eyed one
more "critical new trigger: the possibility for tax reform."