AT1 BONDS

Born of the Global Financial Crisis, AT1 securities were designed to absorb bank losses in times of turbulence and maintain financial safety at no cost to taxpayers. But we’ve found AT1s to be flawed instruments that are contingently junior to common equity in practice. Moreover, they create a troublesome principal-agent conflict for quasi-sovereign banks. So, despite the higher yields offered by AT1s, we continue to steer clear of them given their binary nature and relative unpredictability.