Cat bonds stable & resilient amid tariff financial market volatility: Fund managers
Catastrophe bonds are once again showing their value as a source of portfolio stability, with specialist cat bond fund managers Plenum Investments and Icosa Investments AG highlighting the sector’s calm performance despite growing volatility in broader financial markets tied to U.S. tariff tensions and macroeconomic uncertainty.
In separate updates, both Plenum Investments and Icosa Investments AG emphasised that the cat bond market has remained resilient, even as geopolitical and inflation risks weigh on equities and traditional fixed income.
In a letter to investors, Plenum Investments noted that cat bonds continue to act as a stabilising force, as they have during past crises such as the 2008 financial meltdown, the COVID-19 pandemic, and the interest rate volatility of 2022.
The firm attributed this resilience to the nature of cat bonds, which replace traditional credit risk with natural catastrophe risk and are typically issued as floating-rate instruments. This structure helps shield them from economic policy shifts and market-wide repricing events.
“As long as no trigger event occurs, investors can continue to expect attractive returns,” Plenum wrote.
Looking ahead, Plenum noted that if President Trump’s inflationary trade policies return to the forefront, two trends could further support the cat bond market.
Firstly, with T-Bills currently yielding around 4%, the floating-rate nature of cat bonds means baseline returns are already attractive and likely to remain so.
Secondly, over the medium-term, inflationary pressures may drive up nominal insured values, leading to continued upward momentum in reinsurance pricing, echoing patterns observed in 2022.
Meanwhile, Icosa Investments AG reported subdued trading activity and price stability in the secondary market, reflecting a broader sense of calm across the cat bond space.
“Last Friday, only a handful of bonds traded in the secondary market, with pricing largely consistent with previous broker marks reflecting a calm and stable environment,” the firm noted.
“This mirrors what we’ve seen in past corrections: cat bonds tend to hold up well when other asset classes experience turbulence. Broker price indications were also mostly steady last week. Any price changes, apart from those affecting distressed cat bonds, were in line with normal seasonal patterns for this time of year.”
Additionally, Plenum also acknowledged a secondary effect: if other asset classes undergo broad repricing, some portfolio rebalancing may lead to moderate outflows from cat bond allocations.
However, they argued this could be beneficial for reinsurance investors. “Reduced demand for CAT Bonds helps to stabilise reinsurance yields,” the firm noted, suggesting that declining demand might help preserve attractive return profiles for new issuance.
Overall, both managers struck an optimistic tone on the sector’s outlook, underscoring catastrophe bonds’ reputation as uncorrelated, yield-generating instruments in a world of heightened market uncertainty.
Also read some of the tariff related coverage from our sister publication Reinsurance News:
– Insurers to navigate any challenges arising from new tariffs: KBW.
– US tariffs hit personal lines insurers hardest, J.P. Morgan reports.
– Prolonged US tariffs expected to impact insurers’ loss costs, says AM Best.
