Tags: catastrophe | bonds | interest | rate

WSJ: Investors Snap Up Catastrophe Bonds

By    |   Thursday, 24 April 2014 02:36 PM

Investors seeking high yields are flocking to catastrophe bonds, spurring insurance companies to issue them at the highest rate since the 2008-09 financial crisis.

Catastrophe bond issuance soared more than 100 percent in the first quarter from a year earlier, to $1.2 billion, according to Willis Capital Markets & Advisory, The Wall Street Journal reports. Willis expects second-quarter issuance to reach a record peak of more than $3.5 billion.

Money from the bonds can help pay for claims related to catastrophes such as hurricanes, tornadoes and earthquakes.

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Catastrophe bond holders have rarely suffered losses historically. But investors can lose both interest payments and their principal if the costs of disasters top a preset level, which allows insurers to spend the money, The Journal reports.

The bonds carry floating interest rates and usually have a maturity of three or four years.

"Institutions of smaller and smaller size are becoming interested in the market," Brett Houghton, a managing principal at Fermat Capital Management, a long-standing specialist in catastrophe bonds, tells The Journal.

Investors' strong demand has pushed the bonds' yields to nine-year lows, according to The Journal. The average quarterly yield has slid to 5.22 percent from 9.61 percent two years ago. That compares with 1.71 percent for a five-year Treasury note Friday morning.

As for Treasurys, they have been range-bound in recent weeks, as investors try to discern how Federal Reserve policy will evolve.

Confusion about that policy is "where the market really struggles," Sean Murphy, a Treasurys trader at Societe Generale, tells Bloomberg.

"It's been a bit of a battle" between market views, as dovish comments from Fed Chair Janet Yellen contrast with policymakers "showing no signs of slowing down tapering," he notes.

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InvestingAnalysis
Investors seeking high yields are flocking to catastrophe bonds, spurring insurance companies to issue them at the highest rate since the 2008-09 financial crisis.
catastrophe, bonds, interest, rate
306
2014-36-24
Thursday, 24 April 2014 02:36 PM
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