Operation Twist- Low Rates STILL Here…


For investors  unhappy with the low yield available in the marketplace, it was not good news today that “Operation Twist” from the Fed will  keep long-term interest rates low will continue through 2014. 

For investors looking for safe, higher yield alternatives, the secondary market for annuities looks even more attractive.

Policy makers left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008. 

We must leave  aside for a moment the advisability of our government replacing long-term securities with short-term  interest rate exposure.  It’s clear that in the decades ahead, our massive federal debt will be rolling over at higher and higher interest rates.  

Here is more from the press release:


 June 20 (Bloomberg) — The Federal Reserve will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012 as policy makers lowered their outlook for growth and employment.

  The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said today in a statement at the conclusion of a two-day meeting in Washington.

  The Fed said it is “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.”

  Policy makers led by Chairman Ben S. Bernanke are taking steps to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Payrolls expanded at the slowest pace in a year in May, and the jobless rate has been stuck above 8 percent since February 2009.

  “Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually.”

  The yield on the 10-year Treasury note rose to 1.67 percent at 1:48 p.m. in New York from 1.62 percent late yesterday. The Standard & Poor’s 500 Index was little changed at 1,357.17 after declining as much as 0.9 percent.


 Language Change 

 “The Fed will do more as necessary, and this puts emphasis on it,” said Eric Green, a former New York Fed economist who is now global head of FX, Rates and Commodities at TD Securities in New York. In April the committee said it was “prepared to adjust” its securities holdings “as appropriate” 




Low Rates Expected Until 2014


Arguably the most damaging effect of low interest rates is the impact it has on people approaching retirement and looking for more safety. Traditional safe havens such as CDs pay very little interest in relation to the time commitment required. And I’ll admit that selling annuities in this climate is challenging to say the least.

Several articles available have pointed to recent Federal Reserve meetings that indicate plans to keep interest rates near zero through 2014. That means we likely have nearly three years of the same issues to deal with.

The article linked here mentions all objectives behind keeping rates low for the foreseeable future, most notably an attempt to keep long-term rates low in order to spur economic investment and growth. While this may be a useful step toward reversing the economic lull of the past few years it sure doesn’t give the retirement investor a lot of options.

So, how does a person develop a reasonable game plan in this environment? For every individual there is a balance between different strategies and products available to accomplish each goal. Here are a couple of options:

Guaranteed Lifetime Income Products allow you to achieve a base level of guaranteed income in the future. By doing this with a portion of your assets your future income needs are met and additional assets can be used to pursue greater returns with less risk to your overall portfolio.

Short-Term Index Annuities allow you to keep assets safe for the time being with greater potential to outpace currently low interest rates. Short time periods are key so that you are able to reposition assets when the economic climate changes.

Secondary Market Annuities offer safe money yields that stand above historical average interest rate levels. This presents a unique opportunity to achieve substantial growth while maintaining high levels of safety.

These three options show just a few of the ways you can take positive action against the dismal conditions that exist. Just remember the idea is safety in combination with growth. The last thing you want to do is go backwards.

Feel free to call us for a straightforward talk about how you can improve the outlook for your retirement income plan.

Have a great week!

Bryan J. Anderson
[email protected]