Treasuries Paying 4.5% Are More Than a Decade Away, MetLife Says

  • Insurer previously expected to reach level in three years
  • MetLife joins forecasters seeing lower-for-longer bond yields

Benchmark 10-year Treasury yields are more than a decade away from returning to their long-run average, according to MetLife Inc., the biggest life insurer in the U.S.

Ten-year government bonds won’t reach a “normalized” level of 4.5 percent for another 11 years, MetLife Chief Executive Officer Steve Kandarian said Thursday on a conference call with analysts discussing third-quarter results. Over the past quarter century, the securities -- the benchmark for pricing everything from auto loans to mortgages -- have yielded about 4.7 percent, according to data compiled by Bloomberg.

The New York-based insurer, which previously expected yields to reach 4.5 percent in three years, is joining a slew of bond market prognosticators in betting on yields staying lower for longer. Even with the possibility of the Federal Reserve raising interest rates for the first time in almost a decade next month, forecasters now predict 10-year yields will reach just 2.3 percent by year-end, down from estimates of 3.06 percent at the start of this year.

"Given this year compared to even a few years ago, where there was much more optimism about the recovery of the world economies, we see much slower growth for now and for the foreseeable future," said John Hele, MetLife’s chief financial officer. "And that’s why we put a longer slope going out on the Treasury rate.” The company held about $60 billion in Treasuries and agency debt as of Sept. 30, compared with $57 billion a year prior, according to company data.

Shares Slump

U.S. 10-year note yields rose one basis point, or 0.01 percentage point, to 2.23 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent note due August 2025 fell 2/32 or 63 cents per $1,000 face amount to 97 31/32. Shares of MetLife, which has an investment portfolio of more than $500 billion, slumped 1.2 percent Thursday to $49.90.

The 10-year outlook “strikes me as a major change,” Eric Berg, an analyst at RBC Capital Markets, told MetLife’s executives on the call.

Insurers collect billions of dollars from policyholders and can hold the funds for decades before paying death benefits or obligations on retirement products. The companies invest the money, mostly in bonds, and periodically review long-term projections for returns. Kandarian said third-quarter profit was cut by “less than $180 million” based on an annual review that accounted for lower-than-expected interest rates.

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