Correlation of bond prices/yields to the fortunes of QBE

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Question asked 20/04/2024

Correlation of bond prices/yields to the fortunes of QBE

Message: Good morning MM, This mornung you wrote "We reiterate that MM is bullish bonds/bearish yields" I hold QBE in a DIY fund and I wonder if you could write a short primer on the correlation of bond prices/yields to the fortunes of insurers [and specifically QBE] I am currently in it for the capital gain as their dividends are rather paltry Many thanks John Smith PS I am a "refugee" from Stock Specialist. Your website and newsletters - chalk and cheese!!

Answer

Hi John,

Welcome to MM and we appreciate the positive comparison, hopefully as the saying goes “you haven’t seen anything yet!”

The correlation between QBE and bonds is inverted but very clear, i.e. insurance stocks like prefer lower bonds/higher yields, or “higher for longer”. However, if we are correct and bond yields do decline through the remainder of 2024, and into 2025 QBE will lose this relative tailwind.

However, QBE has more moving parts than just bonds, and we like the business which is well-positioned for a solid earnings position over the years ahead. Importantly, the stock remains cheap, compared to its global peers before we consider the company’s ongoing simplification strategy which is having a positive impact on the returns being generated.

We like QBE into pullbacks but insurance is not our preferred sector at this stage of the cycle.

chart

QBE Insurance (QBE) v Australian 3-Year Bonds

LAST UPDATED 19/04/2024 13:43

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