Inflation’s return is a net positive for global banks, US life insurers

Madhavi Bokil, Alexios Philippides and Laura Bazer explain how banks’ profit margins and US life insurers’ portfolio yields will benefit from rising inflation and a steeper yield curve in several advanced economies. Plus, Joe Pucella discusses the outlook for US commercial real estate lenders and Neal Epstein talks about Federal Reserve actions that helped money market funds stave off the risk of negative yields.

Inside this episode:

• Joe Pucella discusses the outlook for US commercial real estate lenders and Neal Epstein talks about Federal Reserve actions that helped money market funds stave off the risk of negative yields. (begins at 2:26 mins)
• Madhavi Bokil, Alexios Philippides and Laura Bazer explain how banks’ profit margins and US life insurers’ portfolio yields will benefit from rising inflation and a steeper yield curve in several advanced economies. (begins at 9:16 mins)

Related content:

• Commercial Real Estate Lenders – US: Change in outlook to stable from negative reflects recovering demand and asset values - We expect property demand and asset values to rise in many CRE sub-sectors over the next 12-18 months, and improved conditions will support the asset quality of lenders' loan portfolios.
• Money Market Funds – US: Fed's key repo rate increase throws lifeline to money market funds - The demand for high-quality short-term investments is outstripping supply, causing yields to hover near zero. Money market fund returns, and sponsor fees, will remain compressed.
• Banks – Global: Interest rate cycle shift bodes well for banks' profitability - Rising long-term interest rates are driving a gradual steepening in the yield curve in a number of countries. Provided the trend continues it will boost banks' margins in these jurisdictions
• Macroeconomics – US: US inflation indicators rise, but the increase is likely temporary - Inflation measures show acceleration in inflation due to base effects, one-off price increases and surging demand. We expect inflation to temporarily rise, eventually settling around 2%.
• Life Insurance – US: Life Insurers US: a little inflation is credit positive; a sizable spike would hurt - A modest rise in long-term interest rates, will give a boost to life insurers’ investment income and spread-based earnings