Rising Demand and Challenges of AT1 Bonds in Global Banking Sector


  • Concerns for the future of bonds implemented after the financial crisis of 2008 were raised, as they acted as a buffer for banks, shifting into equity when capital drops excessively.
  • As reassurances from regulators across Asia and Europe came in, confidence came back, seeing investors attracted by high yields back to these bonds.
  • With banks from Societe Generale to Barclays rushing to sell AT1s, a UBS AT1 sale of $3.5 billion which sparked orders worth $36 billion was the standout.
  • A surge in the issuance of AT1s by European banks occurred over two weeks, exceeding the sum issued in the preceding nine months, according to M&G Investments.
  • Despite a resurgence in bond demand, a shifting focus towards uncertain global financial predictions and possible impacts on the banking sector could cause a dip in momentum.

AT1s and the Banking Sector

The raised points about the future of AT1 bonds, first introduced after the 2008 economic collapse, imply a potentially critical role in the financial sector. Their role in converting into bank equity during low capital periods is paramount.

Despite previous doubts, these bonds have regained investor confidence, particularly in Europe and Asia, thanks to regulatory reassurances. Their high yield nature continues to draw investors.

Banking Trends

Banks, from Societe Generale to Barclays, have seen an accelerated sale of AT1s. A case in point is a $3.5 billion UBS AT1 sale last month, which sparked orders worth around $36 billion.

In a short span of two weeks, European banks issued more AT1s than they did in the previous nine months, as per M&G Investments data.

Performance of AT1s

November was a prosperous month for AT1s since January, with a 4.6% increase in Invesco’s $1.1 billion exchange-traded fund for such debt. However, it had slipped 12% in March.

In March, the wiping out of Credit Suisse in Switzerland disturbed bondholders’ seniority over shareholders, leaving AT1 bondholders with nothing. Despite this setback, AT1 bond demand has surged but may lose steam due to the unstable global economic outlook and potential banking sector impact.

Potential Challenges

Despite a favourable backdrop for AT1 sales, credibility issues can persist. For instance, Australia’s regulator has been deliberating the challenges of using AT1s and plans to consult on any proposed changes to guidance in the following year.

In conclusion, the unfolding events surrounding AT1s can have significant implications in forex trading and other assets. Market players may need to adjust their strategies based on these evolving market dynamics.

Reporting contributions by Sydney’s Scott Murdoch, London’s Harry Robertson, Tokyo’s Makiko Yamazaki; editing by Jane Merriman.

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