Investors Tempt Mother Nature in Disaster Bonds

REPLAY VIDEO
Your next video will start in
Pause

Recommended Videos

  • Info

  • Comments

  • VIDEO TEXT

June 19 (Bloomberg) -- Bloomberg’s Julie Hyman and Caroline Chen examine the growing interest in catastrophe bonds as debt investors bet against hurricanes and natural disasters. They speak in “On The Markets” on “In The Loop.”

Suppressed, investors are being driven to disaster bonds.

Demand for the $22 billion market are guarantees against natural desires are, -- natural disasters.

For more, carolinechen joins us.

How do these bones work?

Catastrophe bonds or disaster bonds are a way for insurers to put a spread of the natural disaster out to the bond market.

They are usually tied to a specific event like a hurricane in florida or an earthquake in california.

If the incident is not happen, investors are happy and get paid back at a high rate of a hurricane strikes, the insurers don't have to pay anything after that.

Does the bond expired after whatever the event is?

It is usually for three or four years.

There is not going to be a hurricane in florida for maybe the next three years, if that happens, the bond is triggered.

Why is this attractive to investors?

Weather forecasters have a hard time predicting the weather let alone an investor.

With the rate environment, they usually pay a high rate.

Investors are searching for yield everywhere right now.

The other factor is the diversification.

Hurricanes don't really pay attention to what is going on in the market so it's a way to diversify your portfolio.

What are the risks?

You could guess wrong.

Correct, you would stop getting payments when the bond is triggered.

That's the this risk they are getting paid for.

Some people say that hurricanes are easier to model the human sentiment of the market but it depends which side you are on.

We are seeing the bond issuance at a record with just a relatively small compared to the overall bond market by what has been driving the demand?

Is it the idea of reaching for yield?? yes, that's the case on the investor side.

One of the people interviewed said is you cannot have something called catastrophe bonds and have investors flock to it or it it sounds funny.

Part of it is that the market is just maturing and people are getting used to catastrophe bonds and are comfortable with issuing and buying them.

I think we will have to wrap it up there because we have breaking news from general electric.

Thank you so much.

We have been waiting for this news from general electric offering an update on its offer for alstom and it looks like that is happening.

G is talking about some sort of alliance with alstom in energy and transport and would establish two point -- two joint ventures together.

If you look at some of the details, the valuation of this offer for alstom remains unchanged and that is something she indicated that it likely would not be any change to the valuation even though the offer

This text has been automatically generated. It may not be 100% accurate.

Advertisement

BTV Channel Finder

Channel_finder_loader

ZIP is required for U.S. locations

Bloomberg Television in   change