Most corporate defined benefit (DB) pension plans adopt some sort of formal liability-hedging objective, which requires the management of interest rate exposure. However, the interest rate environment is not constant, and liability-driven investing (LDI) investors must consider their strategies within the context of that shifting environment.

Although LDI is a policy decision rather than a tactical one, its effectiveness as a strategy is closely tied to the interest rate environment, which can vary substantially. In this article, we explore how changing interest rate expectations can be built into an LDI process.

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