Cat bond market yield starts seasonal decline as spreads tighten: Plenum

The overall yield of the catastrophe bond market has begun its seasonal decline over the last month as the typical hurricane season spread tightening regime set in, according to cat bond fund manager Plenum Investments.

Catastrophe bond market yields had ended June 2025 at 11.03%, after a slight decline towards the end of that month.

At the time, Plenum Investments said it anticipated the decline persisting and likely accelerating, as season spread tightening began.

As we reported earlier this week, the beginning of those seasonal effects on catastrophe bond spreads resulted in the catastrophe bond market delivering a total return of 1.47% in July 2025.

July is typically the month where seasonal effects as a driver of returns becomes much more evident in the insurance-linked securities (ILS) market. As we said, spread tightening is a driver of higher return performance for the cat bond market, a feature expected to persist through the coming months, with only catastrophe events that occur likely to derail that trend.

This is now evident in the catastrophe bond market yield data. You can analyse the yield of the catastrophe bond market over time in our interactive chart, which uses data kindly shared by Plenum Investments.

As of August 1st 2025, the insurance risk spread component of cat bond market yields, so the discount margin, had declined from 6.73% in late July to 6.53%.

The risk-free component of cat bond market yields, so the collateral return, had declined slightly to 4.28% (from 4.3%), while the expected loss was also slightly down at 2.24% (from 2.27%).

Spreads remain historically attractive, while collateral yields continue to boost investor returns at this time. Investors are set to benefit from higher total return performance through the seasonal period of spread tightening as well.

Plenum Investments commented, “The total yield in the CAT bond market varies between 10.8% (previous month: 11.3%) in USD, 8.5% in EUR (previous month: 8.6%) and 6.3% (previous month: 6.6%) in CHF.

“Since early July, we can clearly see the start of a downward trend of the market yield curve, signaling the start of the seasonal spread tightening regime. We expect this trend to continue and even pick up over the next 2 months, as we enter the peak of the hurricane season.”

However, it is worth noting that the overall yield of the cat bond market is now just under a percentage point higher than where it sat just prior to hurricane Ian in September 2022 (it was 10.1% the week before that storm hit).

The market will be watching the trajectory closely from now and the fact yields have sunk to this level could imply a bottom, in terms of the pricing of new issuances, is nearing.

Analyse catastrophe bond market yields over time using this chart.