The-Global-Inve...'s  Instablog

The-Global-Investor
Send Message
The-Global-Investor is a private client portfolio manger based in London. He also runs his own money, and enjoys doing so, free of the "house view" and risk managers.
My blog:
The-Global-Investor Blog
  • Q1 2013 Update On The CAT Bond Market 0 comments
    Apr 29, 2013 10:01 AM

    The Swiss Re Global CAT bond index is up 3.2% year to date. This index is the most commonly used index for tracking the CAT bond market. It tracks the total return of all USD and EUR denominated CAT bonds, whilst hedging out the EUR currency risk.

    This is behind the performance of other more well known asset classes like equities, and corporate bonds, but ahead of others like commodities (down 3% YTD)

    Investors should not be surprised to hear little news about the CAT bond market until later in the year when the hurricane season in the US starts.

    The main news stories about the CAT bond / reinsurance market revolve around issuance of new CAT bonds.

    2012 saw new issuance hit levels not seen since 2007. During the first quarter of 2013, $670m worth of CAT bonds came to market. The total size of the CAT bond market now stands at roughly $16.5 billion.

    As mentioned in previous blog posts, the CAT bond market is but a fraction of the wider insurance-linked-securities (ILS) market which is estimated to be $505 billion in size.

    There are a few signs that increased demand for CAT bonds are starting to affect pricing, for examples bonds initially priced with a coupon of 9-10% going off at 8.5% due to the level of demand from investors.

    Given the strength of other asset classes, the expected returns still look relatively reasonable. For example the Barcap Global Corporate index now has a yield to maturity of only 2.5%.

    The real advantage of this asset class, still remains its low correlation to other asset classes though

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To The-Global-Investor's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.