Cat bond yields show steadying market trends
Catastrophe bond yields have fallen over the past two years, but the decline likely reflects a return to historical norms rather than a fundamental shift in the market, according to Swiss insurance-linked securities (ILS) manager Euler ILS Partners.
Market expansion masks pricing adjustments
The catastrophe bond market grew in the second quarter of 2026, with both the total outstanding market size and the number of active deals increasing. Euler ILS Partners attributed the growth to “sustained sponsor activity and robust investor demand.”
Primary market pricing, however, has moderated from its 2023-2024 peak. Combined with lower collateral yields, the overall return potential for U.S. dollar-denominated cat bonds has dropped from its highs. Still, yields remain attractive compared to long-term averages, the firm noted.
As of June 30, 2026, the average coupon on outstanding catastrophe bonds stood at 7.12%, down about 10.5% year-over-year. The average yield to maturity—excluding collateral returns—was 5.98%, a 21.4% decline from the previous year but slightly higher than the 5.86% recorded at the end of the first quarter.
The average expected loss for the market ticked up only marginally, from 2.29% to 2.31%, suggesting relative stability in risk pricing.
Performance remains strong despite yield compression
Catastrophe bonds delivered positive returns in early 2026, with the Plenum Cat Bond UCITS Fund Index posting a 3.16% year-to-date gain through June. Over three years, the annualized return was 11.04%, reinforcing the asset class’s long-term track record.
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“Secondary market yields declined from their recent highs but remain above long-term historical averages,” Euler ILS Partners said. “This indicates a pricing normalisation rather than a structural shift in demand.”
Loss experience has also been favorable. The average annual realized market loss over the long term is 0.84%, well below the modeled expected loss for the overall market.
U.S. hurricane risk continues to dominate the peril composition, accounting for about 75% of exposure at the end of the second quarter—up from 74% in Q1. Pure U.S. hurricane-exposed bonds saw a slight decline in share, while multi-peril bonds with hurricane exposure grew to 43% of the market.
If the trend holds, investors may see less volatility in cat bond pricing going forward. But the market’s reliance on U.S. hurricane risk could still leave it vulnerable to large-scale events, even if yields have settled into a more predictable range.
Euler ILS Partners’ quarterly reports provide benchmarks for key metrics in the catastrophe bond space, tracking performance and market composition over time.
