Earth to Hedge Funds: Reinsurers Own Lots- o'-Bonds

Virtuous circles sometimes unwind equally unvirtuously. Such was the case with rising asset prices, and the reinsurance companies that own them, and so it may be in reverse when the market gets around to tweaking their expectations for the group. Strong asset returns in Q1 from stable bonds yields, narrowing credit spreads and rising equities, and a smattering of alternatives, goosed upside surprises and a dribble of rising estimates. Now 60bp of bond yield, (more if one has credit exposure) equaling at least 6 big-figures on price will have the unpleasant result of reversing the bias of estimates in the very future. Yet share prices remain robust, while "S15REAL Index" (S&P Diversified REIT index) continues to get pummeled, as prescient investors run-away from rising yields, and elevating inflationary expectations.

So while hedge funds have been loading up on reinsurers for the [apparent] low valuations and uncorrelated return profiles, their reaction to fallout from imminent earnings revisions will be fascinating to witness.