Cathay Financial Holding Co on June 17 said it expects rate hikes by the US Federal Reserve and Taiwan’s central bank would boost returns on bond investments by its life insurance arm.

The Fed on June 15 raised its benchmark interest rate by three quarters of a percentage point, the largest increase since 1994, after hiking it by 25 basis points in March and 50 basis points last month.

“With the Fed’s rate hikes, we have seen the yields of bonds — US 10-year Treasury, 30-year Treasury, or investment- grade corporate bonds — rise by 150 to 200 basis points, which should boost our interest income,” Cathay Life executive vice president Lin Chao-ting told an annual shareholders’ meeting in Taipei.

As Cathay Life has increased its investment in US bonds, it forecast that interest income would grow by NT$3.3 billion (US$111.04 million) in 2022 from 2021, and the recurring yield would surpass 3.1 percent, Lin said.

If the trend of rising interest rates continues, Cathay Life could see its interest income increase by NT$80 billion in the next five years, Lin added.

Although local and global stock markets have tumbled of late, Cathay Life has bought on dips, targeting companies with advanced technology and rosy prospects, and expects the stocks to provide good returns, the insurer said.

With Taiwan’s central bank raising banks’ required reserve ratio by 25 basis points, Cathay  United  Bank  said  that while this would lead to a decrease in funds available for lending, its loan business would not be affected, as its loan-to- deposit ratio remains at a comparatively low level, spokesman Daniel Teng said.

Taipei Times