When pension funds calculate the value of their liabilities, they therefore use a bond yield to discount future payments.

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You can buy these bonds at a discount and get nearly 8% yield in dollar terms.

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The investment grade rated bond eventually sold at a slight discount from par and fetched a yield of 4.5%, over 250 basis points over 10 year U.S. Treasury bonds.

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Currently, we are using a 10-year Treasury bond yield of 6% as a discount rate.

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Crucially, it states that the present value of future liabilities must be calculated by using the yield on long gilts as a discount rate.

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Cynics might argue that various accounting and solvency regulations that encourage pension funds to discount their liabilities by the government-bond yield have created a handy incentive for pension funds to invest in government bonds.

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Short of that, Feltus figures the 20% to 30% discount he paid will fetch him a 13% yield if he holds his tranche until the bonds mature or are paid off.

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Also using a lower discount rate would magnify pension liabilities and drive managers into an even more desperate hunt for yield, the author says.

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If one-year Treasurys yield 0.5% and stocks yield 2.5%, the futures should be priced at an annualized 2% discount to the spot price.

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As a callow bond-trader, fresh out of college, he participated in one of the greatest of them all, in Japan in 1986, when the yield on the ten-year benchmark Japanese government bond fell to 2.5%, the discount rate at the time.

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