Berenberg adds catastrophe bonds to OTC fixed income offering

Berenberg, the private banking, investment banking, asset and wealth management specialist, will offer catastrophe bond trading over-the-counter (OTC) within its fixed income division, responding to what it sees as growing client demand for access to cat bond investments.

Trading catastrophe bonds in the secondary market is a critical feature for the liquid insurance-linked securities (ILS) sector, allowing investors to buy into cat bond deals after their issuance, trade them for positioning and portfolio management purposes, and offload their holdings for a variety of reasons.

While the cat bond market can be relatively liquid at times, especially at times of robust new issuance, it is also influenced by factors related to catastrophe events and so the secondary market can prove critical after loss events threaten, but also lack liquidity at those times as well.

In addition, global macroeconomic conditions can also affect the secondary cat bond market, amplifying demand for liquidity, or reducing it.

Most broker-dealers and OTC trading desks in the space are highly specialist and a lot of their work is in servicing the need of dedicated ILS fund managers and investors.

But, with demand for cat bond investments rising, traditional fixed income investment giants, as well as multi-asset investment managers, are increasingly turning to the cat bond space as well.

Berenberg sees a need for more liquidity, especially within European trading hours, so its fixed income specialist OTC trading team will now be offering cat bond trading as well.

Berenberg sees cat bonds as a diversifying and attractive investment opportunity for clients, also recognising that it is a market experiencing growth in demand on both sides right now.

The company explained, “Our Fixed Income Special Solutions team aims to improve liquidity in this segment during European trading hours and provide investors with the tools and knowledge to not only anticipate market shifts but also to capitalize on them, ensuring their investments continue to thrive in a changing environment.”

In a recent fixed income outlook report the investment bank noted that “catastrophe bonds offer double-digit yields and are uncorrelated” also noting that the running yield is helping to make them even more attractive at this time.

In another recent report, Berenberg said that catastrophe bonds are one of the asset classes where it holds its “strongest conviction” for the second-quarter of 2024.

With the rising profile of catastrophe bonds and demand from investors, Berenberg Financial Markets has added cat bonds to its range of tradeable securities.

Berenberg also believes that traditional fixed income investors are going to be increasingly attracted to catastrophe bonds, given the yield and diversification they offer.

The entry of more fixed income specialist broker desks to the cat bond secondary market can ultimately help to open up more investor capital and to further diversify the instruments into fixed income markets.

It will also provide more choice to those looking to trade catastrophe bonds, as it has been some years since we’ve seen any new entrants to the secondary cat bond trading desk space.

Dwight Bolden, VP of Fixed Income Sales Trading at Berenberg stated, “The market for CAT bonds has grown significantly in recent years. As we see more and more interest in CAT bonds from our client base, our aim is to improve liquidity during European trading hours in the future.”