Cat bond yields are normalizing, Euler ILS says

For two years, catastrophe bond yields have drifted lower. The easy reading is that too much capital is chasing too little risk. Euler ILS Partners, the Swiss ILS manager, calls it a normalization. In its reading, the slide is a return to the historical range after the exceptional spreads of 2023-24. Artemis first reported Euler's latest quarterly market review.

That distinction matters for allocators deciding whether the asset class still earns its place. As of June 30, Euler put the average coupon on outstanding cat bonds at 7.12%, down about 10.5% from a year earlier. The average yield to maturity, excluding collateral, was 5.98%, 21.4% lower than a year before. It was also up from 5.86% at the end of the first quarter. The average expected loss rose two basis points. It ended June at 2.31 percent. Falling prices and a stable risk profile are the pattern of a market settling back into a range, not rolling over.

Euler traces the coupon decline to moderating primary-market pricing and easing collateral yields. Together they pulled the total dollar return potential off its peak. Even so, the firm says yields remain attractive relative to long-term averages, sustaining the asset class's appeal.

The demand side of that assessment looks sturdy. Artemis notes the market for outstanding cat bonds keeps expanding, in both number of deals and total size. Euler reads that as sustained sponsor activity and robust investor demand. The expansion matches the record $705 billion in global reinsurance capital that AM Best identified this week. Sidecar and quota-share issuance have kept a steady cadence all summer, as Insurance Capital Daily has tracked.

Performance data make the case look reasonable. Euler reports the Plenum Cat Bond UCITS Fund Index returned 3.16% in the first half of 2026. Its three-year annualized return is 11.04%. Cat bond losses have been limited over the long haul, Euler says.

The 5.98% yield-to-maturity ex-collateral is the one to watch. It is the spread an investor actually earns for taking cat risk, before the collateral return, and it sits above the long-term historical average. It rose slightly in the second quarter even as coupons fell — a sign the outstanding stock is turning over. New deals price tighter. The aggregate still carries duration from the 2023-24 issuance vintage, when sponsors paid up.

None of this settles whether the normalization has further to run. Primary-market pricing has moderated but remains above historical averages. Sponsors are testing softer terms: cascading structures and third-event tranches are back in cat bonds, as Insurance Capital Daily reported earlier this week. That is a market negotiating its way from hard-market pricing toward equilibrium. The direction for now is orderly.

A single bad wind season would test Euler's reading. If the normalization is just a return to range, today's yields are a feature of a maturing asset class. If it is something else, losses will show it first — and test whether investor demand, which has held through this repricing, is durable.