http://online.wsj.com/article/SB10001424052970204662204577201751197496914.html Robert Marcotte can't afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit. the low interest rates of... [more]
http://online.wsj.com/article/SB10001424052970204662204577201751197496914.html
Robert Marcotte can't afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit.
the low interest rates of the past several years have taken a toll on U.S. savers. All told, Americans collected interest income from CDs, savings accounts, insurance products and other sources at a seasonally adjusted, annualized rate of $976 billion in the fourth quarter of 2011. That's down nearly a third from the peak rate of $1.42 trillion in the third quarter of 2008.
Financial firms are crafting higher-yielding investments. New York Life Insurance Co. in July rolled out an annuity providing a guaranteed income stream that increases if recipients wait longer to claim it. The annuity, aimed at people nearing retirement, took in more than $220 million in its first six months, making it the company's most successful annuity launch ever, according to New York Life.
Barclays Capital says it has seen increased interest in so-called structured products—bank notes or CDs that can be created to meet investment goals, such as providing a buffer against market losses or the potential for higher income. Overall, the number of structured products that provide income grew by 15% in 2011 from a year earlier, to 5,532, according to data provider StructuredRetailProducts.com.
Low rates are also pressuring life-insurance companies, which rely in part on returns from high-quality bond investments to pay their obligations. "We have about $175 billion in cash and investments, and 94% of that is conservatively invested," says Chris Blunt, executive vice president of New York Life.
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What incentive does a US bank have to extend maturity to a two- or three-year term when Treasury rates at that level of the curve are below the 25 basis points available to them overnight from the Fed? What incentive does Pimco or banks have to buy five-year Treasuries at 75bp when the maximum upside capital gain is 2 per cent of par and the downside substantially more?
http://www.ft.com/intl/cms/s/0/ad537e88-4ccd-11e1-8741-00144feabdc0.html#axzz1lckTm8uv
What incentive does a US bank have to extend maturity to a two- or three-year term when Treasury rates at that level of the curve are below the 25 basis points available to them overnight from the Fed? What incentive does Pimco or banks have to buy five-year Treasuries at 75bp when the maximum upside capital gain is 2 per cent of par and the downside substantially more?