A potential source of diversification in US fixed income for European life insurers

European investors continue to face low yields in the investment grade universe, they are looking for ways to deliver risk-adjusted returns and improve diversification. US fixed income universe could be a good option for European-based insurers because they could provide:

• Potential for higher yields relative to equivalent European fixed income assets
• Greater market liquidity 
• An access to longer dated assets 
• A source of diversification (company / sector / geographic)  

The analysis demonstrates the interest to invest in US papers vs. Euro ones to get structural benefits (asset allocation) and tactical benefits (higher yields, spread pick-up). 

In this paper, we include a case study illustration which exposes a practical implementation, based on economic and market variables as at 30th of March 2018. In any case, we  would encourage European insurers to be mindful of the tactical opportunities that may arise in the US fixed income market to access attractive market conditions.

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Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.