This week three things align:
- AF3/7: Occupational Defined Benefit pensions (technical) module
- AF4: Bonds and Gilts
- This week in the FT weekender: John Authers writing the ‘Long View’ says ‘’…Treasury yields have to be higher..’’. He asks this in the context of inflation.
What is going on in the bond markets around the world will be affecting your clients this week.
If you are in the world of Occupational Pension Transfers, the 20 year bond yield is an interesting one. I use a quick rule of thumb to help me guestimate the impact on CETV values: for every 0.1% change in the 20 year yield, the CETV could change by approximately 5%.
So, what has happened in January 2018?
The 20 year yield has gone UP approximately 0.2% = 10% REDUCTION in CETV values coming through. That’s a £100k reduction in value for a £1m CETV.
(I must admit in a busy January, I hadn’t quite grasped the steady increase…almost daily rise in yield and fall in CETVs)
That’s worth understanding and putting into context for your clients – and being able to explain this will be a question in both the exam and your next client meeting.
After reaching an all time low yield in 2016, they have made a steady recovery following the Brexit vote, an interest rate cut and (and extra) £70 billion of quantitative easing….
What you are studying this week will impact on your professional career. What we are studying this week at Expert Pensions will help you deliver better advice in the real world.
I am passionate about taking that knowledge and applying it into the real world that makes our clients world more secure, more informed and meets more of their goals.
I love the intellectual challenge of joining up our pension and investment knowledge: our professional exams give us an opportunity every year to keep sharpening the blade.
See you behind the goals