Tisch Bets on Munis as Yields Rebound From ‘Ugly Contest’

Loews Corp. (L), the holding company run by New York’s Tisch family, is increasing bets on municipal bonds after the securities declined last quarter.

Loews’s CNA Financial Corp. (CNA) insurance unit was holding munis that cost $10.1 billion as of June 30, according to data released today. That compares with $9.6 billion as of March 31. The insurer said it increased the allocation further this month.

Loews Chief Executive Officer James Tisch is betting on bonds less than five months after saying that yields on fixed-income securities were so low that they were competing in an “ugly contest.” Since then, Federal Reserve Chairman Ben S. Bernanke signaled that the central bank may begin to taper its stimulus efforts. That pushed yields higher, reducing the value of bonds that Loews and other investors have on their books.

“There is, however, a silver lining to higher interest rates, which is that CNA will have the opportunity to invest its significant operating and investment cash flows into higher-yielding securities,” Tisch, 60, said today on a conference call to discuss New York-based Loews’s second-quarter results.

The increase in municipal securities was fueled by bets on tax-exempt debt at Chicago-based CNA. Holdings of the securities cost about $6.66 billion at the end of June, compared with $6.12 billion at the end of the first quarter. Municipal bonds have lost 4.4 percent since March 31, according to Bank of America Merrill Lynch data.

“Towards the end of the quarter, and more recently, we have taken advantage of attractive yield opportunities in the tax-exempt municipal bond market,” CNA Chief Financial Officer Craig Mense said on a separate conference call today. Loews oversees investments for the insurer.

Relative Value

Yields on benchmark munis are the highest in more than two years, part of a broader fixed-income selloff.

Thirty-year munis with a top rating yield about 4.49 percent, the highest since May 2011, data compiled by Bloomberg show. Similar-maturity Treasuries yield 3.65 percent. The ratio of the two interest rates, a measure of relative value, is about 123 percent, near a 12-month high. As that figure rises, it signals local debt is cheapening compared with federal debt.

The insurer, which is 90 percent-owned by Loews, climbed 1.4 percent to $34.94 at 12:17 p.m. in New York after reporting that second-quarter earnings gained on higher investment income. Loews advanced 0.1 percent after saying earnings rose on results at CNA and the holding company’s investment portfolio.

Low interest rates have helped Loews in some ways, Tisch said. His company issued $1 billion in bonds in early May just before rates rose. Half of the notes are 10-year securities that pay a 2.63 percent coupon and the rest is 30-year debt at 4.13 percent. The company hasn’t specified its plans for the proceeds.

“This transaction was purely opportunistic,” Tisch said. “Like I said, I’d rather be lucky than smart. Over the years, we have found it’s easier to raise money when you can, rather than when you have to.”

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Megan Hickey in New York at Mhickey18@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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