Quarterly Investment Review: Q3 2021

Global sovereign bond yields were little changed in the quarter. The US Federal Reserve said it would soon slow the pace of asset purchases. The Fed now sees inflation running to 4.2% this year, above its previous estimate of 3.4%. The Fed raised its GDP projections for 2022 and 2023 to growth of 3.8% and 2.5%, respectively.

US equities notched up a small positive return in Q3. Strong earnings had lifted US stocks in the run up to August, when the Federal Reserve (Fed) seemed to strike a dovish tone, confirming its hesitance to tighten policy too fast. However, growth and inflation concerns late in the quarter meant US equities retraced their steps in September.

More sobering is to look at real rates (nominal rates minus current inflation rate – rightmost column) where all investment-grade fixed income sectors’ real yields are sharply negative, which may facilitate a rethink of investment strategy depending on an organization’s risk appetite, investment horizon, and available capital to support investment volatility.

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