Investors whose brokers or financial advisors recommended that they invest in Steepener Notes (a/k/a “Steepeners”) may have incurred losses due to the risky and complex nature of these products. Steepeners, which are tied to U.S. treasury interest rates, have left investors stuck in illiquid investments while receiving little to none of the regular income they were promised.
What Is A Steepener Note?
Steepener Notes are non-traditional and long-term investments that pay a quarterly or monthly interest payment that is tied to the yield curve, which measures the interest rates on U.S. Treasury securities. Steepener Notes are a type of “structured product”: for the first year or two, the issuer pays investors an above-average rate of interest (often referred to as “teaser” rate), and then, for the remainder of the note—often 15-30 years—the rate is determined by a complex formula.
Market Events Have Made Steepener Notes A Bad Investment For Many
The formula that determines the interest payment on a Steepener Note is often based on the difference between long-term and short-term U.S. Treasury interest rates. Over the last decade, due to market conditions and U.S. economic policy, interest rates have been low. Because the difference between long-term and short-term rates has been slim, the interest payment on Steepeners has been correspondingly low.
Even worse, in 2018 the yield curve inverted, meaning that long-term interest rates were actually lower than short-term interest rates. This phenomenon is often considered a signal of an impending economic recession. Regardless, because of the inverted yield curve, Steepener Note investors outright stopped receiving payment on the notes.
Steepener Notes are essentially a gamble on interest rates and the external factors that influence them. As demonstrated by the economic recession of 2008 and the current volatility due to COVID-19, the market can turn on a dime, leaving Steepener Note investors stuck in illiquid products that generate minimal or no income for prolonged periods of time.
Were You Improperly Sold Steepener Investments?
Steepener Notes are highly complex products. Although they generally pay a “teaser” rate for the first few years, brokerage firms are obligated to explain the risks that could materialize in subsequent years. Steepener Notes are long-term investments with maturity dates 15-30 years into the future, thus, investors must be advised of the risk that they may experience prolonged periods without income coupled with illiquidity. Investors who try to sell Steepener Notes prior to their maturity date risk substantial loss of principal as well as penalty fees.
Brokerage firms that sell Steepener Notes are also obligated to explain to investors that Steepeners are “callable”, meaning that the issuer of the note can buy back the note at almost any time. Therefore, even if market conditions are favorable and a Steepener is paying investors a steady income, the issuer can buy back the note and stop making the scheduled interest payments. This fact is often hidden in complex offering documents, such as a prospectus.
Over the past decade, the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have issued a Regulatory Notice and several investor alerts warning investors of these risks and instructing brokerage firms and investment advisors to be transparent and diligent in the marketing and sale of these risky and complex investments.
Silver Law Group May Be Able To Help You Recover Investment Losses
The brokerage firm that sold you Steepeners has various obligations to investigate and understand the products they sell you, as well as to supervise their brokers and financial advisors who market and sell these securities. If you were sold a Steepener Note and have sustained investment losses, you may be entitled to recovery for your losses.
The Silver Law Group is experienced in representing investors in securities and investment fraud cases nationwide. Our lawyers can help you recover investment losses due to stockbroker misconduct and most cases are handled on a contingency fee basis, meaning you won’t owe us any money until we recover your money for you. Scott Silver, managing partner of Silver Law Group, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and has extensive experience representing investors in securities and investment fraud cases. Please contact us for a confidential consultation at firstname.lastname@example.org or toll free at (800) 975-4345.