Cat bond market yield drops ~0.60% to 10.22% in August on seasonal spread tightening

Seasonal spread tightening effects accelerated in August 2025 driving the overall yield of the catastrophe bond market down approximately 0.60% in the month to 10.22%, as the insurance risk spread, or discount margin, compressed due to the hurricane season.

Hurricane-related seasonal effects began pressuring yields in earnest in July, as the cat bond market yield declined from 11.03% at the end of June, to 10.81% by August 1st.

Plenum Investments, who provides the catastrophe bond market yield data, said it was anticipating the decline persisting and likely accelerating, which has become apparent in the last month.

But, as we had reported, the seasonal effects of spread tightening also drive returns for catastrophe bond funds, with the catastrophe bond market delivering a total return of 1.47% in July 2025, while the average return across the cohort of UCITS catastrophe bond funds rose to 1.09% for the month, the highest monthly performance seen so far this year.

Spread tightening through the hurricane season 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. As a result, those figures may have been beaten in August we suspect.

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

The yield of the catastrophe bond market now sits just slightly above where it was at the end of August 2022, so prior to the occurrence of hurricane Ian.

But, the insurance risk spread, or discount margin, fell to 6.07% at August 29th 2025, which is now lower than the 7.33% level it sat at as of August 26th 2022 and that reflects market softening as well as seasonality this time around.

The collateral yield, or risk free return, remains far higher than it was at that stage, so more than compensates for the reduction in risk spreads still.

But with further spread tightening on the horizon as the peak of the Atlantic hurricane season approaches, it’s going to be interesting to see how far spreads compress this year.

Cat bond fund manager Plenum Investments commented, “The market yield is following its normal seasonal spread tightening pattern. As we are approaching the peak of the hurricane season, we expect the yield to tighten further in the next 2 months.”

Analyse catastrophe bond market yields over time using this chart.