• Bond prices have an inverse relationship with bond yields, so price erosion occurs when interest rates move higher.
• The only real clarity investors have on the future of rates in the United States is the Federal Reserve’s recent guidance, suggesting it will keep rates low until late 2014.

• The 10-year yield on U.S. Treasurys – which stood at just over 2% in early March of this year – reached 1.4% in July.
• Given the current and anticipated rate environment, Treasury investors are looking at negative real yields on the 10-year.

• Callable agency bonds have a preset coupon rate “step- up” that provides for increases in interest or coupon rates as the bonds approach maturity. Step-ups are often called by issuers at a time of declining interest rates, which may accelerate redemption and return principal sooner than expected.
• Floating rate preferreds and fixed-to-floating rate preferreds come with variable interest rates. Floating rate preferreds are generally linked to the three-month U.S. dollar Libor with additional basis points. Fixed-to-floating rate preferreds have a fixed coupon for a certain time period (usually either five or 10 years) and then a floating rate at the end of the period. They are generally linked to the three-month U.S. dollar Libor plus pre-stated additional basis points.

In today’s volatile and uncertain environment, a desire for safety is perfectly natural. But if you rely on your investments for income, being safe and smart means understanding value over time. We recommend you review your portfolio with your Financial Advisor to ensure a proper balance of investments designed to work toward your long-term goals and needs.