The catastrophe bond market experienced strong secondary trading as hurricane Irene approached, according to Bill Dubinsky, Managing Director, Willis Capital Markets & Advisory in this article from AM Best. Secondary trading picked up as the storm approached allowing buyers and sellers (both investors and speculators we imagine) to trade into and out of the market and exposed positions.
In the article he says that this was “Something positive that came out of a big hurricane” for the cat bond market. “There was considerable liquidity in the market. Going back to Hurricane Katrina or 2004, you would not have seen investors as easily move in and out of position.” That’s true, as it used to be the case that there was a lack of buyers in the market when any event threatened a cat bond, meaning investors were often stuck with their positions. This liquidity shows an increasing maturity in the market, particularly of secondary trading, something that is needed for the continued development of the cat bond space. It also suggests that there are speculators willing to take on riskier positions at the right price.
Dubinsky said that he doesn’t expect to see any cat bonds triggered by hurricane Irene damage.