During March, as indicated by the Index, the average cost of purchasing annuities from an insurer increased from 104.4% to 105.6% of the accounting liability. During the same period, the economic cost of maintaining the liability remained level at 105.6% of the accounting liability .
Europe's draft rules on transparency and trading require dealers to make bilateral over-the-counter derivatives quotes available to all of their clients under some conditions – effectively barring the current practice of giving preferential treatment to certain clients on certain trades, banks say. Corporate treasurers worry this will drive up their cost of hedging.
"I mentioned yesterday that, as a condition of their probation, all the banks that pled guilty to a conspiracy to rig foreign-exchange rates have to send sad little "Disclosure Notices" to their clients. Here, for instance, is JPMorgan's disclosure notice, which on a cursory glance seems to be identical to the one attached to its plea agreement. It's an interesting little document. There's an introductory paragraph, and then a paragraph of contrite moaning that "conduct by certain individuals has fallen short of the Firm's expectations," specifically by being a massive antitrust conspiracy."
"The European Commission is expected to extend a key deadline for harmonising its derivatives rules with US regulators, vital for ensuring European banks continue to access US markets."
"If the financiers really want to bring the credit derivatives world back, the sector urgently needs to grow up, in every sense. Let us hope that it can do that before the interest rate cycle turns."
"Deferred income annuities (DIA) have grown in popularity in recent years, and they are poised for further growth as the Treasury Department has simplified procedures for purchasing them in retirement accounts. They are a cousin of single-premium immediate annuities (SPIA), as both offer a guaranteed lifetime income in exchange for a premium payment. The difference is that the start date for income from a DIA is at least a year after the purchase date."
"Man up and open your wallet was the advice that buy- and sell-side gave to derivatives clearing organization (DCO) operators when the Commodity Futures Trading Commission (CFTC) held an industry discussion on a catastrophic failure of a clearinghouse. "
"Public consultation on the Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories"
"Credit ratings agencies have enormous power over countries in dire straits. But whether prevailing global economic conditions affect their assessments is rarely asked. This column suggests that credit ratings agencies overreact in downgrading countries credit ratings during times of economic crisis and instability, and underreact when upgrading during calmer times. This is bad news for policymakers who think that strong economic performance will get them back the credit rating they once took for granted."
"Repo markets have adapted to the liquidity squeeze imposed by new regulations including the liquidity coverage ratio (LCR), but there are more challenges ahead, participants at Euroclear's Collateral Conference said on May 18."
"While fragmentation of global swaps liquidity appears to be abating somewhat, trading on SEFs in the U.S. has been slow to evolve. Meanwhile, though swap future growth has been steady, there still is no comparison between interest rate swap and interest rate swap futures liquidity. Ultimately, however, the higher costs of margin for non-standardized OTC swaps will be strong incentives for both European and U.S. firms to look to listed derivatives to hedge risk."
"Variable spending strategies can be situated on a continuum between two extremes: spending a constant amount from the portfolio each year without regard for the remaining portfolio balance, and spending a fixed percentage of the remaining portfolio balance. Variable spending strategies seek compromise between these extremes by avoiding too many spending cuts while also protecting against the risk that spending must subsequently fall to uncomfortably low levels. Two basic categories for variable spending rules explored include decision rule methods and actuarial methods. Ten strategies will be compared using a consistent set of portfolio return and fee assumptions, and using an XYZ formula to calibrate initial spending: the client willingly accepts an X% probability that spending falls below a threshold of $Y (in inflation-adjusted terms) by year Z of retirement. Presenting the distribution of spending and wealth outcomes for different strategies in which the initial spending rate is calibrated with the XYZ formula will allow for a more meaningful comparison of strategies. The article provides a framework for identifying appropriate spending strategies based on client preferences."
"A natural starting point for discussions about retirement spending is the 4% rule. William Bengen look at all the different 30 year periods in US history and found that withdrawing 4% of retirement date assets, and then subsequently adjusting the spending amount for inflation over the next 30 years, would have worked historically as a sustainable strategy."
"The debate over whether to recapitalize and release the GSEs into the private market is often framed as a choice of whether or not to return to a prior period in lending. For all its shortcomings, the argument goes, at least we know what to expect in the cost and availability of mortgage credit. The authors explain why this is a misconception. In releasing the GSEs into the private market again, we would release them into a very different regulatory and economic environment, and they would respond, not surprisingly, by charging very different mortgage rates."
"What are the prospects for the use of catastrophe bonds as a tool for insurance and reinsurance risk transfer in China? Broker Willis Group provides some thoughts on what could be an ideal tool for transferring the nation’s massive natural disaster and weather risk."
"On top of these complex and challenging tasks, asset managers – along with other users of OTC derivatives – must also come to terms with “frontloading,” a requirement unique to Europe’s approach to migrating from bilateral to central clearing. Because derivatives contracts expire over a variety of maturities, the migration process could lead to some instruments being centrally cleared and others bilaterally, thereby creating an uneven playing field for market participants. "
"While 60 percent of the people in the Bankers Life survey want to retire at 66 or later (or never), the chart below from the Merrill Lynch Bank of America report shows 64 as the average retirement age for men. An earlier study, looking at the median retirement age, found that since 1991 it has been stuck at age 62. "
If the current money transfer system is like receiving mail in your mailbox once a day, bitcoin is like instant message. It's instant and cheap. (In this analogy, Venmo would be like an alert that lets you know you have a new email, but doesn't let you respond until the end of the day.)
A loss of liquidity in global fixed-income markets and a host of other challenges facing investors has set the stage for what could be significant increases in institutional use of bond ETFs, according to Greenwich Associates.