(Bloomberg) – U.S. life insurers are poised to outperform in the debt market next year as they invest premiums at higher interest rates, according to CreditSights Inc. A gauge of U.S. company credit risk rose for the second day.
Higher rates help insurance companies to better match long-term liabilities, CreditSights said in a Dec. 30, 2013 report, upgrading the sector to “outperform.” The extra yield investors demand to hold insurance company debt exceeds the spread on all financials, a gap that will narrow in 2014.
Insurers are benefiting from interest rates near two-year highs, strong equity markets, and record cash on hand, the debt researcher said. After the Federal Reserve decided to curb its record monetary stimulus, yields on the 10-year Treasury have climbed to about the highest level since July 2011.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, increased 0.5 basis point to a mid-price of 63.8 basis points, according to prices compiled by Bloomberg.
The index, which typically rises as investor confidence deteriorates and falls as it improves, reached its lowest level since October 2007 on Dec. 26 and is headed for its biggest annual decline since 2009, Bloomberg prices show.
The extra yield investors demand to hold investment-grade corporate bonds rather than government debt narrowed 0.7 basis point to 113.8 basis points, Bloomberg data show.