Biden’s $86 Billion Pension Rescue Set to Boost Corporate Bonds

U.S. President Joe Biden’s pension bailout might do more than just support troubled retirement plans. It could also spur tens of billions of dollars in demand for corporate bonds with the lowest investment-grade ratings, according to Citigroup Inc.

Struggling multi-employer pensions, which are often tied to unions, will be able to apply for special financial assistance, thanks to the $1.9 trillion pandemic-relief bill signed into law in March. Pension Benefit Guaranty Corp., which insurers the plans, will make a single lump-sum payment to eligible funds.

Citigroup estimates that roughly 230 pensions will be eligible to receive $86 billion as early as 2022, though the amount may change when the pension insurer releases application guidance in July, strategists Daniel Sorid and Jason Williams said in an interview. The plans will have to invest the money in high-grade bonds or other securities approved by the agency.

The strategists said pension managers may try to extract as much yield as possible by loading up on bonds in the lowest investment-grade rung, which yield 2.46% on average, versus 2.23% for the broader market. Existing funds could get reallocated into riskier investments like stocks, they added. But in credit, the new demand may entice companies rated BBB to issue longer-dated paper than they usually do and flatten the curve for bonds maturing in 10 years and 30 years even further.

“If there was ever a time when 30-year credit should be having its moment in the sun, it’s now,” Sorid said.