Bid-heavy demand, tightening cat bond spreads persisted in secondary market: Swiss Re

The secondary market for catastrophe bonds alternated between extended periods of low trading volume and flurries of more active turnover in 2025. However, according to Swiss Re Capital Markets, the market remained relatively “bid-heavy” throughout the majority of the year, with limited offers and tightening spreads reflecting a sellers’ market characterised by excess capacity.

In its latest ILS Market Insights report, Swiss Re Capital Markets noted that the level of TRACE activity in 2025 showcased how secondary turnover remained subdued throughout large parts of the year before activity began to pick up episodically during periods where primary issuance and portfolio’s began to rebalance.

This aligns with the firm’s H1 2025 ILS Market Insights report, where Swiss Re Capital Markets noted at the time, that the level of TRACE activity had dropped when compared to H1 2024.

“Secondary spreads generally tightened over the course of 2025, consistent with the softening reinsurance and ILS market environment and the continued excess capital available to the asset class,” Swiss Re Capital Markets said.

Adding: “With low volumes of trades for much of the year and meaningful cash building up across investor portfolios, secondary trading conditions largely reinforced a sellers’ market.”

The firm also explained that the active primary issuance pipeline in Q4 2025 allowed investors to effectively deploy some of the excess capital into new cat bond issuances, which ultimately led to a more active secondary market.

This in turn allowed cat bond investors to rebalance their portfolios, Swiss Re Capital Markets noted.

Further into the report, Swiss Re Capital Markets also provided some insights into its cat bond indices.

As we explained in a previous article, the Swiss Re Global Cat Bond Total Return Index had an impressive 2025, recording another year of double‑digit performance at a return of 11.4% for the year.

“Since 2021, the SR Cat Bond Index delivered a total return of 61% with only Hurricane Ian in the fall of 2022 causing a significant drawback in returns over that period. The SR Cat Bond Index remained stable during periods of volatility in the financial market in April 2025 – highlighting the non-correlation with the broader market and moving in line with a benign US wind season,” the firm explained.

The firm elaborated that fluctuations in the weighted average yield throughout 2025 closely reflected the changes in investor cash positions and the resulting balance between purchasing interest and available supply.

Additionally, robust collateral returns consistently offered a stable source of performance support during the year too.