The Stable Value Option and Future Interest Rate Changes
The investment objectives of our Stable Value Option (SVO) are preservation of principal and a relatively stable rate of return compared to intermediate fixed income yields. This strategy is intended to enable participants invested in the SVO to minimize the potential for losses and realize positive returns throughout difficult market environments.
Our SVO yields have gone down over time, following the overall interest rate’s downward trend. The graph below compares the annualized SVO crediting rates with yields on 5-year U.S. Treasury bonds. SVO crediting rates have been higher than 5-year U.S. Treasury yields over most of this period and have not moved up and down as much. Changes to the SVO crediting rate generally respond slower or “lag” the overall changes in interest rates. Until more SVO investments mature and are reinvested at current interest rates, the SVO rate generally reflects older investment rates.
This lag has benefited the SVO crediting rate as overall interest rates have generally trended down over the past 23 years. The opposite will probably be true when overall interest rates eventually go up. As interest rates rise, the SVO crediting rate may lag and earn less than yields on comparable fixed income investments for some period.
The SVO seeks to preserve principal and provide a competitive rate of return. However, as with all investments, the SVO involves certain risks, such as inflation risk and credit risk. Please read the investment profile for more complete information.
Ohio DC SVO Annualized Yield versus 5-Year U.S. Treasury Yield