This could be detrimental to them if there were increased defaults on these bonds because of a phase of economic weakness. However, insurers’ investment policies overall remain conservative. Banks, in particular, should arm themselves against potential losses in market value in the event of a turnaround in interest rates.
In the case of investments via exchange-traded funds, liquidity risk must be monitored, particularly where less liquid underlyings are concerned. A striking example of the need for this monitoring was provided in the United States in June of this year.