Immunization Strategy for XYZ Corporation's Pension Liabilities

XYZ Corporation is a medium-sized manufacturer with a defined benefit pension plan whose liabilities amount to $200 million. These liabilities are expected to mature in 10 years. The current interest rate environment is characterized by a yield curve that is upward sloping, with short-term interest rates at 2% and long-term rates at 4%. The plan's current asset allocation is 70% in intermediate bonds and 30% in equities.

In light of recent funding challenges and increased scrutiny from stakeholders, the management of XYZ Corporation is contemplating a liability-driven investment strategy focused on immunization. You have been tasked with evaluating their current portfolio and proposing an investment strategy that ensures that the pension liabilities remain funded over time.

Discuss the key principles of immunization as a liability-driven investment strategy, detailing how they apply to the specific case of XYZ Corporation. Include an analysis of the current asset allocation's effectiveness in immunizing the liabilities, the implications of interest rate changes on the funding status, and recommend adjustments or alternative strategies to achieve the desired immunization.