New York 50A and 50B Case Resolution
Another New York 50A and 50B Discount Rate Update
So much for predicting that rates would move in a range between 2.45 and 2.95%!
Since the beginning of the year, daily yields have moved from 2.46% to over 3.95% or about 150 basis points.
The latest 10-year auctions, the regular May and the interim June have vastly different auction yields.
Think of it this way, the government is about to receive 6.5% less for the same instrument that it put in the market a month ago. Or if as a trader you bought the issue last month, it is now worth 6.5% less.
With regard to the valuation of Awards tied to 10-Year Treasuries, the rough rule of thumb for a balanced Award of future damage periods is that the total value moves 2.5% for each 25 basis point change in the Treasury rate used. The 150 basis point move in daily Treasury yields would reduce valuations by approximately 15%. That applies to the Net Award and attorney fees.
Neither the plaintiffs or liability carriers should want to be in the business of hedging 10-Year Treasury yields. Yet, they are. With the use of the 10-Year Treasury on the date of the verdict, they are betting that the rate will be favorable to them at least as it affects attorney fees. The defendant must offer and guarantee the stream of future payments resulting from the valuation through an annuity contract. The cost of such contracts is somewhat independent of daily treasury yields. Under amended 50A, a substantial portion of the lump sum payments related to future damages are directly affected by the 10-Year Treasury yield.
For some time, we have recommended the use of some form of average 10-Year Treasury rates/yields to provide stability and predictability, and to remove the process from the vagaries of the daily 10-Year Treasury yields. But, it is difficult to give up on seemingly advantageous daily yields, if they seem to benefit your side.
This reliance on daily yields also makes settlement more complicated. How do the parties agree on a settlement amount without some form of valuation? How do they perform a valuation without anticipation of some 10-Year rate to apply?
We address this issue by offering to perform valuations for the parties on a first come basis, and/or to provide training on and access to the valuation suites. The suites incorporate an average rate/yield calculator together with a report detailing the calculations, incorporate the ability to test and/or apply different rates. Capabilities are laid out in a primer on Article 50 Awards, and how their complexities can be made simple.
Samples of output can be accessed by using
For a subject by subject discussion of the applicable statutes
Operation of New York 50A Operation of New York 50B
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