Swiss Re Insurance-Linked Fund Management

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Slower cat bond trading last week, again focused on higher coupons


Trading of catastrophe bonds in the secondary market was a little slower last week, with just four bond trades recorded by FINRA’s TRACE system. However the focus remains on higher coupon cat bonds, as some investors snap up any that are offered in the market.

In recent weeks there has been a trend of some investors seeking to maximise their returns with any opportunities to buy notes that yield above the average of recent new issuance. As a result the majority of secondary cat bond trades have involved notes with a coupon of 6% and higher, with the last seven days following the pattern.

Since the start of the year there has also been a trend of investors offloading catastrophe bond positions as they shift their portfolios more towards collateralized reinsurance, where returns can often be higher. This has resulted in a glut of short-dated, or soon to mature, cat bond notes becoming available, often with higher coupons.

Some ILS investors, especially ILS fund managers with liquid strategies, are keen to acquire these notes, higher yielding whether short-dated or not, to hold to maturity. With coupons in many cases significantly higher than recently issued catastrophe bonds where risk levels and as a result yields have dropped.

Once again all of the trades recorded by FINRA’s TRACE system feature a coupon above 6% in the last week.

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

Atlas Reinsurance VII Limited – Traded at 102.57 on 18th Feb, flat with previous trade on 11th Feb. Coupon 8%. Matures 1st July 2016.

Blue Danube Ltd. (Series 2012-1) – Class A notes traded at 100.2 on 19th Feb, down from 100.45 on the 20th Jan, coupon 6.04%.

East Lane Re V Ltd. (Series 2012-1) – Class A notes traded at 105.45 on 18th Feb, down from 105.9 on 30th Jan. Coupon 9.038%. Matures March 2016.

Mythen Ltd. (Series 2012-1) – Class H notes traded at 101.46 on 18th Feb, down from 101.75 on 14th Jan. Coupon 11.042%. Matures 7th May 2015.

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