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Risk Aversion Grows as “Brexit” is a Distinct Possibility

While most of our industry focuses on the new Department of Labor (DOL) rules and how this would affect annuity sales in general over the next few years, there’s an event happening next week that could upset the financial markets.

You’ve started to see it already. This week, highly-rated government bond yields dropped dramatically. The US 10-year Treasury fell to 1.56% and the 10-year German Bund fell as low as minus .034% before closing at 0%.

brexit1What’s going on? On June 23rd, the United Kingdom will vote on whether to stay or leave the European Union (EU). Leaving the 28 nation block (Brexit, as it is known) wasn’t considered a real possibility just a few months ago. However, now the polls are tightening up, paving the way for the distinct possibility of a UK exit.

Even the CEO of AXA, Henri de Castries admitted an “extremely high” probability of a vote to leave. If this happens, the EU could start to unravel.
The markets don’t like uncertainty and in times like this there is a flight to safety.

We’ve seen fixed annuity rates drop recently and we expect more rate reductions in the coming days. Is it possible that we could see the US 10-year Treasury fall to 1% in the coming weeks?

The markets, and investors, have anticipated rate increases for years. Many have stayed on the sidelines delaying purchases of insurance contracts such as fixed annuities. The “cost of waiting”, in the hope that fixed rates would increase, has been enormous for many clients.

Realistically, how important are rates when clients are really concerned about safety and guarantees? Yes, interest rates remain low, and they may go lower – but fixed annuities may still be considered a true safe haven for your clients’ safe money.

About Mike Gorlick

President & CEO, Zenith Marketing Group, Inc.

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