The first half of 2022 will no doubt be remembered for severe fixed income volatility. Markets are now reacting to the end of unconventional monetary policy, which for the past several years has supressed the peaks and troughs of traditional economic cycles. Going forward, asset allocation within credit will be highly important, as the margin for error is very acute and will be costly given the deterioration in credit quality for some sectors away from insurance. Insurance Bond spreads remain at unjustifiably elevated levels, despite the sector’s strong fundamentals underpinned by Solvency ratios on average at 216%, which provides protection in a deteriorating macro backdrop. The sector is one of the best paying from a yield perspective, with significant upside potential.
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