Unum Group Chief Executive Officer Thomas Watjen is shying awayfrom adding junk bonds to the insurer's investment portfolio afteryields plummeted.

“There are times like now maybe where high-yield gets too hot,”Watjen, whose company holds about $40 billion of fixed- maturitysecurities, said today in an interview at Bloomberg headquarters inNew York. “You just can't get enough return in the sector tojustify investing, given the risk parameters of that assetclass.”

Yields on speculative-grade debt tumbled to a record low of 7.19percent in May before rising to 7.45 percent as of July 22,according to Bank of America Merrill Lynch index data. Thatcompares with an average borrowing cost of 12.6 percent onsimilarly rated companies two years earlier, the data show.

Unum, the largest U.S. disability insurer, has about 7 percentof fixed-maturity assets in junk debt. The Chattanooga,Tennessee-based company's portfolio is composed mainly of corporatebonds, including about $9.7 billion of debt issued by utilities asof March 31, compared with $8.8 billion at the end of 2009. Watjensaid he favors utilities because they present the right value andduration for Unum.

“We're happy with both the credit quality of the utility spacein general, and obviously as an issuer they tend to be issuingbonds that are more consistent with our asset-liability managementneeds,” Watjen said. “That's why you see it growing a little bit.”Disability insurers buy bonds with maturities of 20 or 30 years tofund claims payments decades into the future.

'Awful Lot of Money'
High-yield borrowershave been selling debt at the fastest pace ever during the past twoyears, as the Federal Reserve's record monetary stimulus pushesinvestors toward riskier assets while creating lower borrowingcosts. High-yield, high-risk, or junk, borrowers are rated belowBaa3 by Moody's Investors Service and lower than BBB- by Standard& Poor's.

“There's an awful lot of money chasing too few qualityinvestments,” Watjen said.

Speculative-grade issuance has reached $187.2 billion this yearcompared with about $130.2 billion the same period in 2010. Salesin all of last year were about $287 billion, according to datacompiled by Bloomberg.

Unum slipped 25 cents to $25.30 at 4:15 p.m. in New York StockExchange composite trading. The firm has gained 4.5 percent thisyear, compared with the 7.6 percent fall of the 24- company KBWInsurance Index.

Unum has reported increases in earnings-per-share in threestraight quarters. The company is buying back stock as a U.S.unemployment rate of more than 9 percent crimps the insurer'sability to add policyholders and increase revenue.

“We're still waiting to see some signs of improvement, but thatobviously hasn't been the case,” Watjen said of hiring in the U.S.“Unfortunately, the top line is a struggle for us and our wholeindustry, actually.”

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