While issuers of U.S. corporate bonds are obtaining record-low borrowing costs, reaching an unprecedented 3.9 percent on Aug. 2, cat bonds are enticing investors with higher yields.

Sales Rise

Cat bonds issued in dollars in 2012 paid an average 915 basis points more than short-term benchmarks, up from 899 basis points last year and 881 in 2010, Bloomberg data show. High- yield bonds in the U.S. pay a spread of 589 basis points, down from an average 607 in 2011 and 630 the prior year.

"The yields on cat bonds are actually relatively normal, which relative to everything else means attractive," said John Brynjolfsson, chief investment officer at hedge fund Armored Wolf LLC, which oversees $735 million and owns cat bonds.

That's helped boost issuance of the debt, which insurers sell to reduce the risk of claims from hurricanes and floods to pandemics, to $3.6 billion through the first six months of the year, the most since 2007, according to Swiss Re data. Companies have sold $887 billion of dollar debt this year.

"When you're seeing a growing asset class that's still offering yield, that's what attracts folks," said Cory Anger, a managing director at broker-dealer GC Securities. "When you're looking at the absolute return you're getting in other asset classes, people are concerned about the level of income that they're able to generate."

Investor Appeal

Citizens Property Insurance Corp., Florida's state-owned insurer, more than tripled its target amount in a debut sale of obligations designed to protect against losses from hurricanes to $750 million in April, the biggest offering on record of cat bonds. Goldman Sachs managed the sale.

"We absolutely did not know that we would have the opportunity to upsize this thing three times," Sharon Binnun, chief financial officer of the state's largest property insurer, said in a telephone interview. "In the interest-rate environment that we're in now, investors are looking for another vehicle through which to park at least a portion of their investment portfolios."

The debt, effective for two years, priced to yield 17.75 percentage points more than a money-market fund of Treasuries in which the proceeds will be stored.