Deadly Curves Ahead
Flattening sovereign yield curves, particularly in the U.S. and Germany, are depriving insurance companies of cash-flow return on their investments. I've written about the dangers posed by flat sovereign yield curves to global capital infrastructure before, and falling yields for U.S. and German notes today provided a good excuse to raise this important issue again.
The problem this poses for insurance companies is also a conundrum for the Federal Reserve. Since the failure of Lehman Brothers in 2008, the Fed has lowered short rates and used quantitative easing and operation twist to lower long rates. The idea was that eventually, the cost of capital would decline enough that lenders would lend and borrowers would borrow, especially for homes and autos. That would increase economic activity, allowing long rates to rise and widening yield spreads across the curve....367 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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