Benchmark U.S. Treasury yields have been on the rise since the start of the year. The yield of the benchmark 10-year Treasury note has been hovering around 1.8% of late. The increase in interest rates will allow financial institutions, including insurance companies, to generate better revenues.
At its December FOMC meeting, the Federal Reserve announced that it would accelerate the reduction of its monthly bond purchases and signaled three interest rate hikes later this year. A reduction in bond buying by the Fed should reduce bond prices, pushing their interest yields up. Because higher bond yields increase risk-free returns, the high investments in bonds by financial institutions should benefit them. Insurance companies usually hold long-term high-quality bonds to meet their promised returns to policyholders. Therefore, higher bond yields should benefit them.
