ASX 200 shares in the insurance sector have performed strongly this week despite rising yields and inflation concerns weighing on broader equity markets.
The QBE Insurance Group Ltd (ASX: QBE) share price is up 6.35% this week to $12.23. Insurance Australia Group Ltd (ASX: IAG) is not far behind, with the IAG share price rallying 4.75% to $5.19.
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Why are these ASX 200 shares outperforming?
Insurance is often viewed as a defensive industry that remains stable during fluctuations in the broader economy.
Insurers hold a lot of fixed-income assets, such as short-term money, government bonds, corporate bonds and infrastructure debt, to back the insurance policies they write.
In an era where global interest rates are at or close to zero, these underlying bond investments are yielding weak returns.
But the circumstances could soon change for these ASX 200 shares given the concerns about rising inflation.
The US Federal Reserve initially flagged higher inflation as 'transitory' as the global economy cycles through elevated prices from 2020. However, surging energy prices and supply bottlenecks have continued to place upward pressure on inflation.
A number of Federal Reserve officials have already expressed their expectations of an increase in interest rates in 2022.
Benchmark US 10-year treasury yields are pushing higher this week, reflecting the inflation and tighter monetary policy concerns. The 10-year rate is currently fetching 1.59%, the highest since early June.
Closer to home, the Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 0.5% this week. This is its first rate hike since June 2014. Policymakers say this decision is appropriate to keep inflation at bay and ease the hot property market.
ASX 200 shares in the insurance sector have held up well this week despite the whipsaw-like action from the S&P/ASX 200 Index (ASX: XJO).
Looking at the bigger picture, both QBE and Insurance Australia are both trading well below pre-COVID levels.
