Seasonality lifts catastrophe bond market returns to one of the best July’s ever

The catastrophe bond market delivered a total return of 1.47% in July 2025, as seasonality kicked in and drove what we’re told was one of the best performances for that month of any year in the history of the benchmark Swiss Re Global Cat Bond Index.

With no significant upwards secondary market revisions of any impaired bonds in the month, the returns in July 2025 are attributed to premium related spread accrual accelerating with the time of year, sources stated.

Seasonal effects of the main peril that the catastrophe bond market is exposed to (hurricane risk) are the key driver here, as you’d anticipate, with Atlantic wind seasonality kicking into gear.

The result was a particularly strong month of returns for numerous catastrophe bond fund strategies, we understand, we’re told the second best July performance for this Index ever after 2024.

Many cat bond fund strategies exceeded a 1% return for July 2025, with even certain lower-risk strategy funds getting close to that level we are told, while a number of cat bond funds experienced their best month of this year so far.

July is often the month where seasonal effects as a driver of returns becomes much more evident in the insurance-linked securities (ILS) market.

With July 2025 seeing no major catastrophe loss events around the globe that detracted from returns, the seasonal accrual of premium-related earnings will likely have been even more pronounced for many private ILS funds that allocate to collateralized reinsurance and retrocession arrangements.

For the catastrophe bond market, the 1.47% return of the Swiss Re Global Cat Bond Index in July 2025 is particularly strong and demonstrates the fact the market-wide basket of bonds continues to benefit through the higher coupon earnings from offerings that have been issued since pricing firmed from late 2022.

Seasonal tightening of spreads drives the higher return performance in the cat bond market at this time of year, a feature expected to persist through the coming months, with only catastrophe events that occur likely to derail that trend.

The peak of the hurricane season is typically seen to be around the September into October time frame, meaning returns are typically bolstered by seasonality over the next few months, depending on activity in the Atlantic basin.

After July, the Swiss Re Global Cat Bond Index stands at a 4.23% total return for the first seven months of this year.

The main detractor to returns in 2025 so far was the effects of the California wildfires, with some direct cat bond losses. As well as certain losses that subsequently occurred to a number of aggregate cat bonds, due to that event at the start of the year and other US severe weather impacts both before and since.

Without the California wildfires, which has been the most meaningful driver of any cat bond mark-downs through 2025, the market total return would likely be at least 1 percentage point higher, perhaps more at this stage.

While that’s still running behind the levels of total return delivered by the catastrophe bond market in 2023 and 2024, returns this year are still shaping up to be attractive for catastrophe bond investors.

But, conditions in the Atlantic over the next two to three months will likely determine just how the full-year pans out and also have a significant bearing for catastrophe bond pricing once issuance picks up towards year-end again.

For reference, the Swiss Re Global Cat Bond Index total return is running at close to 14% for the trailing 12-month period, a further demonstration that while pricing is down for new cat bond issues the market continues to deliver historically attractive returns to its investors.

It’s also worth remembering that the conditions which drove the record returns of 2023 (19.29% for the year) would not be repeated, given a few percent of that came from positions recovering post-hurricane Ian.

While the second highest year of cat bond returns ever in 2024 (17.29%) were driven by the very hard reinsurance market conditions at the time, which was an exceptional environment while also being a relatively loss free year.

As a result, the market is seemingly settling back into more normal territory in 2025, but with returns still historically attractive even with an element of catastrophe loss through the year so far.

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