TOKYO (Bloomberg) — Japan’s bond investors are so desperate for yield that more and more of them are putting money in notes from insurers whose value can be wiped out by unexpectedly strong hurricanes or earthquakes.

Catastrophe bonds in the US yield 3.3 per cent on average, a Swiss RE AG index shows, beating the 1.5 per cent yield on 10-year Treasuries and the minus 0.095 per cent for similar-maturity Japanese sovereigns. Asuka Asset Management Co’s $52 million Asuka Insurance Linked Opportunities Strategy fund mainly invests in such notes. It said interest from Japanese pension funds, already accounting for more than 90 per cent of holdings in the fund, and endowments is about twice as strong as a year ago.

Catastrophe bonds are “considered to be a decent investment product as yields are disappearing in the global market,” said Eiji Miura, the managing executive officer at the Tokyo-based firm, which oversees $263 million. “Clients say they’re looking around and this is the only investment that they can add now.”

While catastrophe bonds have gained 6.8 per cent in the year ending June 30 according to Swiss RE data, they can be risky: Japan’s 2011 earthquake caused $300 million of losses for securities issued by Muteki Ltd that helped cover temblor exposure taken on by German reinsurer Munich Re. Warren Buffett said in 2014 that Berkshire Hathaway Inc was avoiding writing hurricane insurance in Florida because premiums were too low. The Bank of Japan’s negative-rate policy has slashed yields on more than 70 per cent of government bonds below zero, making investors hungry for return.

Cat bonds’ performance in the year ended June 30 beat the 4 per cent earned from the S&P 500 Index while the Hedge Fund Research HFRI Fund Weighted Composite Index lost 2.4 per cent in the same period.

Insurance companies and reinsurers typically sell cat bonds to help cover their most extreme risks, with the proceeds of the issues set aside and paid out in the event of a qualifying disaster. Buyers get a relatively high interest margin for holding the notes and risk forfeiting their entire investment if the securities are triggered before they mature.

Cat bonds issued by Gator Re that carry North American hurricane risk plunged in June after its accumulated losses reached 70 per cent of the trigger level, though calm weather since May means the price may recover, the Asuka Insurance Linked Opportunities fund said in a report in June. A simulation shows that insurance payments for Hurricane Katrina in 2005 would have cut the net asset value of the fund by 1.9 per cent, according to the report.

The Asuka fund earned 0.6 per cent in the three months ended June and has provided an average return of 5.5 per cent a year since its inception in 2012. Due to rising interest from Japanese pension funds, Asuka plans to double its assets under management to $100 million as soon as in a year, said Bermudian-based Masahide Kitade, the chief executive officer of Eastpoint Asset Management Ltd, which manages the fund for Asuka.

The asset manager changed the denomination of the fund to yen from dollars at the beginning of the fiscal year started April 1 to avoid dealing with currency fluctuation risks after a client request, Asuka’s Miura said. The yen has jumped about 24 per cent against the dollar in the past twelve months, the biggest gain among ten major currencies.

“If you look at the industrialised countries, yields are low or negative everywhere at the moment,” said Miura. “This cat bond still has 500 to 600 basis point of yields. And it has low or no correlation with equity markets. From the stand point of diversification, that makes sense for our investors.”