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Shares in Canadian life insurers rally as bond yields soar

Manulife headquarters in Toronto

KEVIN FRAYER/Canadian Press

Canadian life insurance stocks jumped on Wednesday, led by sector heavyweight Manulife Financial , as a more optimistic outlook from the U.S. Federal Reserve boosted bond yields, which suggested less pressure on the companies' profits in the future.

Low bond yields have hammered the insurers' earnings over the past three years. Lower yields reduce the projected returns from their investment portfolios, forcing them to set aside reserves to ensure they can pay future policy obligations.

Yields of both Canadian bonds and U.S. Treasuries have surged as the U.S. Federal Reserve's economic outlook on Tuesday prompted traders to reduce safe-haven bond bets.

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Manulife stock was up 7.7 per cent at $13.62 by mid afternoon, its highest point since October of last year.

National Bank of Canada analyst Peter Routledge said the stock was also likely getting some relief after declining last month, when Manulife said its chief financial officer was leaving.

"I think there was clearly some nervousness and now with the more accommodative outlook for long-term interest rates, that's sort to come off a bit," he said.

Shares of smaller rival Industrial Alliance were up an even stronger 8.7 per cent at $30.40.

Sun Life Financial was up 3.9 per cent at C$22.49, while Great-West Lifeco , the Canadian insurer with the least market exposure, was up 2.2 per cent at $24.41.

Despite the sharp jump, shares of the companies are still far below the levels at which they traded before the 2008 financial crisis. They are also still struggling to make up for stock losses late last year, due to uncertainty about the U.S. recovery and the European financial crisis.

"We're just going to be living in more volatile times for the foreseeable future, and volatility works both ways," Routledge said. "Today it's working up."

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