Swiss Re Insurance-Linked Fund Management

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New cat bond issuance continues to stimulate secondary trades in May 2017


The record high levels of new catastrophe bond issuance seen in May 2017 has once again helped to stimulate activity in the secondary trading market, as ILS fund managers and investors looked to balance their portfolios and also deal with higher levels of maturities during the month.

Secondary catastrophe bond tradingMay 2017 has become the most active month in the catastrophe bond market’s history, with over $3.6 billion of new risk capital issued.

During the month of May the market also saw almost $500 million of maturities, with another $1.33 billion maturing in the first week or so of June.

These transactions that were coming to an end meant that ILS funds and investors had capital available to plough into the new issuance deals, and the fact that new issues continues to outstrip the level of maturities has resulted in some investment managers being able to let a little new capital into their cat bond fund strategies.

Commenting on the level of secondary catastrophe bond trading in May 2017, Craig Bonder, Managing Director at AK Capital said; “It was another active month of secondary trading with over forty specific credits having traded according to TRACE data.”

Bonder also commented on how the record high levels of primary catastrophe bond issuance impacted the secondary trading market, as well as how maturities are traded just prior to rolling out of the market.

“As is usually the case we saw this new issuance initiate portfolio re-balancing and boost secondary trading. In particular we saw large flows of short dated bonds as we neared the end of the 2017 pre US Hurricane season maturities,” he said.

Much of the cat bond trading activity seen in May 2017 revolved around the swapping out of short-dated U.S. hurricane bonds that were soon maturing for the long-dated new issuance, many of which were also U.S. hurricane exposed.

On a relative basis cat bond trading has not been stunningly active in recent months, but the need to adjust portfolios in light of high levels of new cat bond issuance has helped to keep the market flowing.

Pricing began to reflect the approaching start of the U.S. hurricane season in May, with Swiss based ILS and cat bond investment manager Plenum Investments saying that; “The seasonal decline of prices for US hurricane bonds continued, but at a slower pace.”

Looking ahead, Plenum said that; “Now that the hurricane season has officially started, we expect to see mark to market gains on the US hurricane bond positions.”

Overall the levels of cat bond trading seen in recent months, largely stimulated by primary issuance flows as well as maturing capital re-deployment, have helped to keep secondary pricing a little more stable than seen in recent years.

Many cat bond fund managers will be looking forward to the seasonal price gains that much of the market experiences through the hurricane season, which will provide a welcome boost to cat bond fund returns over the coming months.

Additionally, the overhang of record monthly issuance in May 2017, with another $900 million or more of cat bonds issued in June as well, could mean secondary trading activity continues to be a little more active through the summer, as ILS fund managers and investors continue to adjust portfolios to absorb the record levels of first-half 2017 cat bonds.

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