German bond markets and US monetary policy

Low interest rates have been a major problem for the European life insurance industry. The implementation of Solvency II certainly has forced European life insurers to improve their risk management procedures and to buy long term bonds in order to handle the interest rate risk inherent to their liabilities. As a consequence, the industry meanwhile more or less seems to be able to cope with the problem of low interest rates. However, now the US central bank has started to hike rates. The Bank of Canada meanwhile has followed its southern neighbor. The changed monetary policy environment in North America might create new challenges for asset managers in the European life insurance industry. This paper provides some additional thoughts and empirical evidence about the linkages between US monetary policy and the European bond market employing techniques of time series analysis.