Tim Antonelli, CFA, FRM, SCR, Insurance Multi-Asset Strategist, Wellington Management
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As we march into the second half of 2022, the “bread and butter” of most insurers’ asset allocation is beginning to look more promising, as we have improved our outlook for reserve-backing fixed income assets. Market worries seem to be shifting from stagflation to weaker growth, yet fed funds futures are signaling more interest-rate hikes ahead than the US Federal Reserve’s (Fed’s) already-hawkish forecast. For our part, we think slower growth and the market’s expectations will limit future spikes in rates. In the meantime, higher yields of around 4.5% in US high-quality bonds mark a departure from the return-free rate environment and offer a welcome reinvestment rate for insurers. However, we still have a moderately underweight view on surplus fixed income.