[danielfoster]

I like to think I’m somewhat intelligent, but there’s something I don’t understand here. The article cites an example of pandemic bond holders receiving a return of 40% over 3 years and these bonds being a useful way for the issuer to secure needed funds in the event of a pandemic. Unless a pandemic happens every ~8 years, isn’t this a ridiculous and unsustainable risk premium to pay?

[HillRat]

The class B bonds paid roughly 11% over LIBOR, so about 40% over three years, against the risk of a viral outbreak for five different families, defined as At least two countries experiencing at least 250 fatal cases increasing over twelve weeks, so the trigger did not have to be as globally-significant as COVID-19 turned out to be. That’s a pretty aggressive coupon, but the chance of a regional outbreak was also pretty high.

[dmurray]

Based on that description it would have been triggered by COVID-19, swine flu in 2009, and I think just missed out (depending on the fine print) on SARS in 2002. That's two or three in 18 years, so losing your money once every eight years is not far off the recent performance of this kind of bond.

[danielfoster]

Makes sense now, thank you! I feel like the author should have mentioned this.