FROM: Lisa Sorani, Manager of HR Employee Services LS -
FROM: Lisa Sorani, Manager of HR Employee Services LS -
FROM: Lisa Sorani, Manager of HR Employee Services LS -
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THE CURRENT INTEREST RATE ENVIRONMENT<br />
• The current interest rate environment has created an extremely asymmetric risk reward pr<strong>of</strong>ile<br />
o<br />
o<br />
The best outcome is getting your money back at maturity and earning a meager 2% interest along the<br />
way<br />
However, the potential downside during the tenure <strong>of</strong> the bond is enormous<br />
• The graph below shows the return distribution for a 10-year Treasury under different interest<br />
rate environments<br />
15%<br />
5%<br />
2%<br />
-5%<br />
% Change in<br />
Value<br />
-15%<br />
-25%<br />
-35%<br />
-45%<br />
‐7%<br />
‐15%<br />
‐22%<br />
‐28%<br />
‐34%<br />
‐39%<br />
-55%<br />
‐44%<br />
‐48%<br />
‐52% ‐55%<br />
-65%<br />
+0% +1% +2% +3% +4% +5% +6% +7% +8% +9% +10%<br />
Source: PCA, US Treasury<br />
% Change in Interest Rates<br />
Pension Consulting Alliance, Inc. ││ EBMUD Fixed Income Discussion │ 10
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