Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Cat bonds largely trade lower, according to latest TRACE data


Secondary market catastrophe bond trades captured by FINRA’s TRACE system in the last week showed a trend towards lower pricing, especially for short-dated bonds which continue to change hands.

Reasonable levels of secondary cat bond trading activity continued to be seen in the last week, especially among some of the soon-to-mature notes which appear to be more attractive to hold to some ILS investors than others, as we explained last week.

Some investors clearly continue to be attracted to the opportunity to hold short-dated bonds to maturity, especially those which are either fully or partially off-risk at the moment as their main exposure is the U.S. hurricane season.

It’s possible that some of the sellers are ILS funds which are increasingly shifting their focus to private ILS and collateralized reinsurance deals, while the buyers could be ILS funds such as the new beta strategies or cat bond only investors in search of better returns.

Again, in the last week many of the cat bonds which were successfully traded were offering higher coupons in the range of 7% and upwards and traded above par. This is likely to continue to be a trend, with some investors willing to pay above par for bonds they can boost their portfolio returns with.

In fact, cat bonds continue to trade above par, a trend seen throughout much of 2014. But many appear to have traded lower in recent weeks as some value comes off cat bonds, particularly these short-dated notes.

In fact all of the trades recorded on TRACE in the last week were at a lower price than the last time these bonds were traded. This likely reflects seasonality changes, but also a dynamic among investors with some investors displaying a desire to offload the short-dated notes, while others have an appetite to acquire them due to their coupons.

Here’s a list of the cat bonds that traded last week and their most recent prices, where data is available from FINRA’s TRACE system:

Blue Danube Ltd. (Series 2012-1) – Class A notes traded on 14th Jan at 100.45, down from 101.92 in October, coupon 6.04%. Class B notes traded on 14th Jan at 101.45, down from 103.65 in August 2014, coupon 10.79%.

Embarcadero Re Ltd. (Series 2012-1) – Traded on 14th Jan at 100.15, down from 100.23 in December 2014, coupon 7.258%.

Kibou Ltd. (Series 2012-1) – Traded on 12th Jan at 100.14, down from 100.3 in November 2014, coupon 5.265%.

Lakeside Re III Ltd. – Traded on 16th Jan at 104, down from 104.1 in November 2014, coupon 8.03%.

Merna Re IV Ltd. – Traded on 14th Jan at 101, flat with previous trade in October 2014, coupon 2.53%.

MultiCat Mexico Ltd. (Series 2012-1) – Traded a number of times on 13th, 14th and 15th Jan. Latest price at 100.7. Previously priced at 102.44 in July 2014. Coupon 7.508%.

Mythen Ltd. (Series 2012-1) – Traded on 12th, 13th, 14th Jan, latest price at 101.75. Previously priced at 103.5 in October 2014. Coupon 11.006%.

Pelican Re Ltd. (Series 2012-1) – Traded on 14th Jan at 103.1, down from 103.65 in December 2014. Coupon 13.785%.

Queen Street IV Capital Ltd. – Traded at 100.85 on 14th Jan, down from 100.85 in December. Coupon 7.505%.

Queen Street V Re Ltd. – Traded at 101 on 15th Jan, down from 102.35 in November 2014. Coupon 8.505%.

Queen Street VI Re Ltd. – Traded at 101 on 12th Jan, down from 101.02 in December. Coupon 10.383%.

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