(Bloomberg) -- Banks are having their busiest week of issuance of Additional Tier 1 bonds since this risky type of bank debt was introduced in the wake of the global financial crisis.
European lenders, which account for the bulk of the AT1 market globally, raised the equivalent of €7.1 billion ($7.9 billion) of capital this week, surpassing every other weekly tally on record, based on data compiled by Bloomberg.
The supply from the likes of UBS Group AG, HSBC Holdings Plc and BNP Paribas SA comes amid a broader rush among investors to lock in yields as traders expect the Federal Reserve to start cutting interest rates from this month. Banks have been inundated with orders for even the riskiest bonds.
Alpha Bank SA’s holding company was one of this week’s issuers of AT1 debt, drawing nine times as many orders as the amount it eventually raised and slashing its cost of capital compared to its first foray in early 2023. Other deals this week were also heavily subscribed.
We saw “a very strong list of names building up the book very quickly in the first couple of hours,” Lazaros Papagaryfallou, deputy chief executive officer at the Greek lender, said in an interview. “We had an ambitious target as far as pricing is concerned and it exceeded our expectations.”
Alpha Bank’s latest AT1 was issued with a coupon of 7.5%. Its previous sale early last year carried an 11.875% rate.
AT1s, also known as contingent convertible, or CoCo, bonds, were introduced after the global financial crisis to ensure bondholders take losses to keep a bank afloat without resorting to taxpayer-funded bailouts. Activity froze for months after the historic writedown of $17 billion of Credit Suisse securities but has been going strong especially since its acquirer, UBS, returned to the space last autumn.
Yields in AT1s are indicated near their lowest level in more than two years, according to Bloomberg indexes, helped by a more than halving of credit spreads since the Credit Suisse wipeout and a general decline in yields ahead of potential rate cuts by major central banks.
The market is on track to double-digit returns this year, beating gains in investment-grade bonds and junk debt.
(Updates with AT1 coupons in sixth paragraph. A previous version corrected Papagaryfallou’s job title in fifth paragraph.)
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