If a pension fund use the company’s corporate bond yield as the discount rate for its liabilities, doesn’t that mean the PV of those liabilities is lower? This confused me because, let’s say we have a bond portfolio of government bonds to address our liabilities pertaining to the promised pension payments. If there is a flight to safety- and government bonds go up in price and corporate bonds go down in price, doesn’t that mean the value of the government bond assets go up, the discount rate makes the liabilities go down, and funded status would improve?
Seems unlikely the funded status would improve since the discount rate used for the liabilities is the corporate bond’s yield & their credit risk went up?
Does this make sense?