Bulk cat bond offers reach $400mn amid Covid-19 crisis

Around $400mn of cat bonds have been put up for sale in bid-wanted-in-competition (BWIC) lists submitted to brokers since 9 March, as prices increasingly came under pressure, Aon Securities CEO Paul Schultz told Trading Risk.

The latest tally is above the $250mn figure previously reported by this publication.

Noting that the number of BWICs increased throughout last week and included five BWICs from large institutional asset managers, Schultz said “the first couple of lists experienced fairly strong execution with bids at or just slightly behind the dealer pricing sheets”.

“As more lists were distributed and the volume of bonds on offer increased, the handful of buyers began to be more selective and opportunistic, and show bids increasingly discounted from the previous trades,” Schultz added.

However, sellers looking to take advantage of dislocations in other asset classes were not willing to trade some bonds for which bids were deemed too low.

He expects to see increased trading volumes over the coming days, as a number of the BWICs filed are still in the market.

Some of the bonds traded in the market experienced a mid-to-high single-digit percentage change in bid spreads, Schultz noted.

A separate source confirmed that there was still a number of unfulfilled BWIC orders in the market, suggesting that pressure on pricing means 96 cents in the dollar is "the new par" in the secondary cat bond market.

Though the outcome will depend on the characteristics of individual deals, this markdown suggests that spreads have widened by about 200 basis points due to the Covid-19 stock and bond market crash.

While there has been some spill-over in the cat bond market from the equities and bond market crash, cat bonds have proven to be much more resilient than other more traditional financial securities.

Cat bond prices fell by just 0.81 percent in the week to 20 March, according to the Swiss Re global price return index, while the Nasdaq plummeted by 12.6 percent over the same period.

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