Bond markets are closely tracking pension reform proposals in both Congress and the Financial Accounting Standards Board.
For corporate bond investors, there is a fear of what different accounting and measuring standards might reveal in terms of underfunded plans at the companies whose debt they hold. For the wider market, there is a sense that any reform will encourage bond buying.
"Every time you get headlines about reform, people [talk] about it being bullish for bonds," said Stephen Stanley, economist at RBS Greenwich Capital, who added that the impact of legislative action was likely to be less than from accounting changes. "It's not clear that helping the PBGC [Pension Benefit Guaranty Corporation] become more solvent and tightening funding requirements for plan sponsors means buying bonds. But moving towards firms marking their plans to market on their balance sheets . . . if plan volatility bleeds into the earnings statement, investors won't be happy," he added. "That might compel them to put more into fixed income."
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