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You are here: Home / Annuity Commentary / The China Affect on Annuities…

The China Affect on Annuities…

August 29, 2015 By Annuity Guys®

There has been no shortage of China headlines as their economy faces major headwinds. It would be naive to think that the second largest economy in the world, that is close to becoming number one, would somehow not affect the US economy adversely if they go into a free-fall. Even a small country like Greece going in and out of default cast economic turbulence on larger successful countries. So, imagine how much worse it could be for the world if… [continued below video]

Video: Watch as Annuity Guys, Dick and Eric, discuss the not so good “China Affect” on annuities!

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued below]…China does not get its house in order soon!

So why should retirees who own annuities or those with plans to purchase them care about what is happening in China? Simple. When markets become unstable and volatile, investors flee to safety; this often leads them to purchase short-term US government bonds. As demand for US treasuries rise, bond prices increase which in turn lowers the yields on bonds as their price is bid up by demand. Hence, the annuity companies that rely on higher bond yields to remain profitable and solvent must react to these lower bond yields by cutting costs which translates into **guarantees and benefits being reduced as a cost cutting measure. Due to increased demand for bonds, most annuity companies feel this financial pressure and are now positioning for changes. So, if you are close to moving annuities into your asset mix, now may be an excellent time to lock in better **guarantees and benefits before they are reduced by the China Affect!.

How severe will it get in the market before another stable uptrend is underway? This is a question with no certain answer. Many believe that there will be a 20 to 40 percent drop before things get back on track; others believe we have already seen the worst. Regardless of which scenario is correct, you must ask yourself how much are you willing to lose and “that is the amount you should consider for stock market risk” especially if you are in or near retirement. Annuities and other insured or **guaranteed financial products are where the balance of your money needs to be if safety is one of your important objectives.

 

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Read more on this subject in this article:

10-year Treasury yield hits 2-month low after China’s yuan devaluation

By Ellie Ismailidou

Demand for Treasury bonds jumped Tuesday, driving yields down to their lowest level since May 29, after a surprise devaluation of the Chinese yuan by the People’s Bank of China sparked flight-to-safety flows into haven assets, like Treasurys.

“A devaluation implies even slower growth in China, and that’s driving an aggressive risk-off trade, with the rates markets taking back all of Monday’s losses,” Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said in a note.

The yield on the 10-year Treasury TMUBMUSD10Y, -0.12% tumbled 9.9 basis points to 2.139%, the largest one-day decline since July 6, according to Tradeweb. Bond yields fall as prices rise and vice versa. Read More…

 

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Filed Under: Annuity Commentary, Annuity Guys Blog, Annuity Guys Video, Annuity Rates, Annuity Safety, Retirement Tagged With: annuities, Annuities And Retirement, Annuity, Annuity Safety, China, Life Annuity

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  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
Annuities are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping Annuity Guys website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this educational Annuity Guys Website. He still maintains his insurance license in good standing and assists his current clients.
Annuity Guys' vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)



  # Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact an Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.


  ^ Investors should consider investment objectives, risk, charges, and expenses carefully before investing. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.


  ^ Eric Judy offers advisory services through Client One Securities, LLC an Investment Advisor. Annuity Guys Ltd. and Client One Securities, LLC are not affiliated.


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