Cat bond yields indicate pricing normalisation rather than a structural shift: Euler ILS Partners

Catastrophe bond market yields may have declined over the last two years, but specialist Swiss insurance-linked securities investment manager Euler ILS Partners believes this is a normalisation, or a return to more historically normal pricing, rather than a structural shift in demand.

The catastrophe bond market continued to expand through the second-quarter of 2026 and as well as the outstanding cat bond market size increasing, Euler ILS Partners notes that the number of outstanding deals rose as well, which the ILS manager explained highlights “sustained sponsor activity and robust investor demand across the market.”

The investment manager further stated, “Primary market pricing moderated from the peak levels observed in 2023 and 2024. Together with easing collateral yields, the overall USD return potential declined from its peak, reflecting a broader normalisation of market conditions. Despite this adjustment, yield levels remain attractive relative to long‑term historical averages, continuing to support the appeal of Cat Bonds.”

Euler ILS Partners publishes helpful quarterly insights into the catastrophe bond market, its performance and the composition of the outstanding market which provide helpful benchmarks for key metrics on the asset class.

While the metrics show prices as having declined, the ILS manager believes this is a normalisation after a period of exceptional higher spreads, rather than anything out of the ordinary.

As of the end of the second-quarter of 2026, Euler ILS Partners reports the average coupon of the outstanding stock of catastrophe bonds as sitting at 7.12%, down around 10.5% year-on-year. This metric stood at 7.56% at the end of Q1 this year.

The average yield to maturity of the catastrophe bond market, excluding the collateral return, stood at 5.98% as of June 30th 2026, which while down 21.4% year-on-year has actually risen from the 5.86% reported for the end of the first-quarter.

That perhaps helps to show some stabilisation as prices normalise across cat bonds. At the same time the average expected loss of the cat bond market only rose slightly from 2.29% at the end of Q1 2026 to 2.31% by the end of the second-quarter.

Commenting on the performance of the asset class, Euler ILS Partners said, “Cat Bonds delivered positive performance in early 2026, with the Plenum Cat Bond UCITS Fund Index recording a return of 3.16% year‑to‑date as of the end of June, while three‑year annualised performance stood at 11.04% p.a., underlining the asset class’s strong long‑term performance.

“Secondary market yields declined from their recent highs but remain above long‑term historical averages, indicating a pricing normalisation rather than a structural shift in demand. Cat Bond loss experience continues to be limited from a long‑term perspective, with the average annual realised market loss amounting to 0.84%. This compares favourably to the modelled expected loss for the overall market.”

On the peril composition of the catastrophe bond market after the second-quarter, Euler ILS Partners now estimates that US hurricane risk accounts for around 75% of exposure, up from 74% as of the end of Q1.

Pure US hurricane exposed cat bonds shrank slightly to 31% over Q2, from 33.3% of exposure at March 31st. But the US hurricane exposed multi-peril cat bond component of the market increased to 43% from 41% over the quarter.