Canadian life insurer stocks rally on Fed outlook

Wed Mar 14, 2012 5:42pm EDT
 
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By Cameron French

TORONTO (Reuters) - Canadian life insurance stocks jumped on Wednesday, with sector heavyweight Manulife Financial (MFC.TO: Quote) rising 6.6 percent, as a more optimistic outlook from the U.S. Federal Reserve boosted bond yields and brightened the profit outlook for the sector.

Low yields have hammered the insurers' earnings over the past two years because the insurers use long-term bonds to back their policy obligations. Falling yields force them to revalue their portfolios lower and set aside reserves to make up the difference.

Yields on both Canadian bonds and U.S. Treasuries have surged as the U.S. Federal Reserve's economic outlook on Tuesday prompted traders to reduce safe-haven bond bets.

The benchmark 10-year U.S. treasury note yielded 2.27 percent on Wednesday, up from 2.13 percent on Tuesday and 2.03 percent on Monday. 30-year U.S. notes yielded 3.40 percent, up from 3.26 percent on Tuesday.

HIGHEST SINCE OCTOBER

Manulife stock rose 6.6 percent to C$13.49, touching its highest point since October of last year.

National Bank of Canada analyst Peter Routledge said the stock was also likely getting some relief after declining last month, when Manulife said its chief financial officer was leaving.

"I think there was clearly some nervousness, and now with the more accommodative outlook for long-term interest rates, that's sort to come off a bit," he said.   Continued...