Defined terms for the annuity market and lifetime income landscape.
Falling rate environment effects on annuity pricing are the changes in payout rates on newly issued contracts, mark-to-market position of existing bond portfolios, and reinvestment economics on maturing assets that occur when prevailing nominal interest rates move lower over a sustained period.
Federal funds rate is the overnight interest rate at which depository institutions lend reserve balances to one another, used by the Federal Reserve as the primary instrument of US monetary policy.
Inflation risk is the possibility that rising general price levels erode the real purchasing power of a lifetime income stream over the planning horizon, particularly where the income is fixed in nominal terms.
Interest rate cycle is the recurring pattern of rising and falling interest rates over multi-year periods, driven by the interaction of economic conditions, inflation, and central bank policy.
Investment grade versus high yield is the standard credit-quality classification for corporate bonds, dividing them into investment-grade bonds — rated at or above the BBB minus / Baa3 threshold by the major rating agencies — and high-yield bonds rated below that threshold.
