by Paul McBeth
The product provider said it would meet its January payment on time after the fund recovered its value in the upswing last year as interest rate markets recovered their losses.
In the last 12 months, the Fidelity Capital Guaranteed Bond's value "rose 40% over that period and got to $86 million, which was enough to pay out the interest," said chief executive Milton Jennings. "The volatility should go out of the market over the next 12 months" as interest rates return to normal levels, though there will still be opportunities for strong growth if this is done gradually, he said.
Rapid movements in interest rates will still impact on the bond, and Jennings points to the brief flurry of action caused by the threat of default by Dubai World at the end of last year.
"Dubai caused interest rates to drop, then faded pretty quickly" bringing volatility back into the market for a brief period of time, he said.
He hopes central banks revert monetary policy back to normal settings in a gradual manner, so they will not have to pay out on their three-to-four week options over U.S. 10-year Treasuries.
"If they go up by 50 or 60 points at once, then that's costing us money," he said.
Still, Jennings is confident the next year holds value for the fund as markets continue to recover from their depressed levels over the past two years.
"We expect to gain 20/25% in the next 12 months, which will be more than enough to cover all of the coupon payments," he said.
Paul is a staff writer for Good Returns based in Wellington.
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