Pushing yields higher, many traders anticipate the Federal Reserve to embark on interest rate normalization, with the next major hurdle coming up in December. Supporting the rising rate bets, Philadelphia Fed President Patrick Harker said Friday he still anticipates the central bank to hike rates in December, Reuters reported.
With the markets look toward higher rates, the insurance industry can capitalize on wider margins. The industry has previously been suffering from spread compression on products like universal life and fixed annuities due to the stubbornly low rate environment. With greater investment income, insurers see conditions improve as rates rise.
Since the insurance industry largely targets the domestic economy, a strengthening U.S. dollar will have a lower impact on the sector. Insurance ETFs, sensitive to Treasury yield gyrations in their own regard, are often responsive to rising bond yields. Among industry ETFs that respond positively to rising Treasury yields, perhaps only regional bank funds have been more desperate for rising rates than insurance ETFs.
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