The shape of the Treasury yield curve generally provides insight into the market’s expectations for interest rates, as well as economic activity. As of June, the yield curve has shifted higher and flattened compared to the beginning of the year and the last year. The Federal Reserve’s recent aggressive actions have resulted in the higher Treasury rates and a flattening of the yield curve, as many investors believe higher rates will push the U.S. economy into a recession. The yield curve also inverted briefly in midJune, which market participants view as a recession signal.
As of year-end 2021, U.S. insurers had exposure to about $316.3 billion in U.S. government bonds across various maturities, or about 6% of total cash and invested assets. This was an increase from $280.6 billion at year-end 2020, but it was unchanged as a percentage of total cash and invested assets.
Author(s): Jennifer Johnson and Michele Wong
Publication Date: 23 June 2022
Publication Site: NAIC Capital Markets Special Report
The same forces widening the gap between sectors are also amplifying differences within sectors, mostly because the winners are pulling ahead. In every single sector, including those facing significant industry headwinds, some companies increased their market value during the course of the crisis (Exhibit 4).
For example, while the restaurant industry has struggled mightily during the pandemic, Domino’s Pizza delivered total returns to shareholders (TRS) of 26 percent, thanks to its technologically advanced business model and its ability to quickly ramp up delivery. Likewise, Peloton, maker of internet-enabled exercise bikes, saw its shares’ value increase more than fivefold even as most traditional gyms have struggled under lockdowns. And while it may not be surprising that many online-first retailers did very well over the past year, some traditionally brick-and-mortar operators such as Target (TRS of 64 percent) managed to adapt and outperform even as the pandemic hammered the retail sector.