The narrowing of catastrophe bond spreads in recent months and into early 2024 is reflective of the strong investor demand for this segment of insurance-linked securities (ILS), interest which may continue to build as the fading interest rate environment is expected to increase the relative appeal of ILS again, analysts at BofA Securities said.
We often say that insurance-linked securities (ILS), such as catastrophe bonds and other direct reinsurance-linked investments are relatively uncorrelated and diversifying compared to other asset classes.
How ILS instruments respond to interest rates is one area, of interest, as they clearly benefit when interest rates rise given their floating-rate nature, but as the BofA Securities analysts note the ILS sector can also benefit when interest rates fall.
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