Credit derivatives Cat bonds & Cat Swaps

Today the whole financial world is eyeing Spain in fact everyone is Freaking Out Over Spain‘sBond Auction will happen today. The Spanish benchmark bond are into red territory with the yield spiking from an intraday low of 5.717% early to 5.89%, finally catching up with Spanish CDS which have been wider for a while, now that CDS is once again more liquid and credible than cash bonds.

So just thought of sharing few exotic bonds :-

Catastrophe bonds, also known as cat bonds, are a form of securitization used to transfer natural catastrophe risk to the capital market. Such bonds usually have a volume of $100 each. Most cat bonds are issued by the special purpose reinsurance companies incorporated in the Cayman islands, Bermuda or Ireland and are rated by the independent agency.

Cat swaps on the other hand are made to measure derivatives that can be traded over the counter. These require lesser documentation and are useful for a lower level of payouts than bonds. While they do not necessarily provide reinsurance coverage, they have been issued for storms, earth quakes, aviation losses as well as terrorism related losses.

4 thoughts on “Credit derivatives Cat bonds & Cat Swaps

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