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12-09-2011 - The Weekly Market Report

Markets in general were dealt a large blow in Friday with the resignation of Jurgen Stark (Germany) from the board of the ECB. This precipitated a large sell off in world markets as the spectre of a Greek default looms large once again. The increasing lack of political will in Europe to bail out over indebted members is increasing risks worldwide.

This together with the spectre of an interest rate cut as once again reduced interest rates. Peculiarly, on a one year basis inflation is expected to be above the repo/Jibar rate as influenced by the central bank. This implies that real yields will be negative on a forward looking basis, something which is pretty unusual for SA.
The net effect has been a slight decrease in guaranteed annuity rates as yield continue to fall.

For more information on how this change in curve affects annuity rates please download the Paramount University Series document How to calculate an annuity.

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