The overall yield of the catastrophe bond market stood at 10.44% on the finish of February 2025 in line with information from specialist supervisor Plenum Investments, with the corporate explaining that opposing forces are driving the cat bond market yield sideways at the moment.
In late 2024, high-demand for disaster bond investments had compressed threat spreads ensuing within the overall yield of the catastrophe bond market falling again into single digits at 9.94% by the top of December 2024.
Then, after the impactful California wildfires in January triggered value changes within the disaster bond market, the overall market yield ended that month back in double-digit territory, at 10.34% in USD.
By February, opposing forces have been in-play, ensuing within the disaster bond market yield being comparatively flat and ending the month at 10.44% in USD.
There have been, in fact, further value pressures for some wildfire uncovered disaster bonds in February, particularly combination notes, however there have been additionally some value recoveries too, such as with the Topanga Re cat bond.
Which meant the wildfire impact was extra muted, as opposing forces drove the yield trajectory for the cat bond market final month.
What have been these opposing forces which have been the driving force of cat bond market yields in current weeks and that are set to proceed this pattern over the approaching weeks?
Plenum Investments defined that, “Two opposing forces are at the moment shaping this month’s market yield. On the one hand, the costs of US hurricane bonds fall seasonally. Alternatively, the sturdy demand for CAT bonds is resulting in rising costs.
“Because of this, the market return at the moment doesn’t present a transparent upward path, as is normally the case in winter. We proceed to anticipate sideways motion.”
A ten.44% disaster bond market yield, pushed by its parts of a 6.14% insurance coverage threat unfold and 4.3% collateral yield stays very enticing for traders at the moment.
In comparison with virtually all different mounted revenue alternate options, the disaster bond market continues to ship on greater spreads, with the additional advantage of the risk-free return on collateral as nicely.
This could proceed to drive investor consciousness, curiosity and demand, which in fact may additional compress cat bond spreads considerably over time.
Analyse catastrophe bond market yields over time using this chart.
