I was going to include the chart, but the resolution would not be that great for viewing. If you want to skip this financial analysis and see the Workers Comp info, scroll down to the next heading.
One caveat to skipping this section is that all interest rates use these figures as part of the basis for mortgage, credit cards, and loan rates on personal loans.
While searching through economic-type articles, I came across one of those BUY GOLD articles and ads saying that China is selling off more US Securities than in a long time. China is replacing theTreasuries with gold. Please excuse the marketing page for gold, but the article has great analytics.
I then decided to look to see if the #2 holder of US Treasuries had sold them off over the last year, Yes, Japan, the #2 holder of US Treasuries had also sold them off in the last 12 months.
US Treasury Holdings China and Japan
The reason (actually opinions) why China and Japan are selling them off can be found at Bloomberg Asia in the late evening hours (East Coast Time). Actually, I watch it sometimes as the “outside looking in” viewpoints on US financial news can be eye-opening.
Here are the numbers:
China – $62 billion sell-off
Japan – $24 billion sell-off
Usually, the US Treasuries are replaced with US stocks, which means the money did not leave the country. When our two largest holders of treasuries are not shifting the money, but pulling it back into their own countries, that may be something to track at least every year.
You may look a the whole market and notice an increase in US Treasuries. That is exactly true, Then again, if you have ever sold anything and you tell your boss that sales are down with your top two customers, that would be a bad scene.
Insurance Carriers Investments – US Treasuries
If one looks at the SEC filings by insurance carriers, there will always be a section on investments. Carriers love to dabble in the stock markets. However, the safer investments – Bonds, Treasuries, Cash, etc. usually hold most of the investment risk. Insurance carriers are usually invested in conservative investments.
When the two main investor countries start to sell off their investments, the yield will usually decrease. The chart below shows the drop from a safe yield of 3.25% to 2.6%. This chart is up to the minute from one year ago.
Provided by Yahoo Finance
If insurance carriers cannot make a profit on investments, where would they go to make investment returns for their shareholders? How about a premium increase? I am not saying that would happen. Sometimes common sense rules, though.
Bottom Line on US Treasuries and China or Japan
The rates are not solely responsible for any type of premium increase on Workers Comp as we know from articles on this blog that many variables have an effect. Look at the US Treasury sell-off as a driver, not the sole variable.
This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.
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