AT1 Bonds: Investor Risk Means Stronger Banks

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The Credit Suisse bail-in has cleaned out the bank’s AT1 bondholders; and across the bank universe, AT1 bond prices have dropped more than 10% this month. But consensus data suggests that for depositors and central banks, bail-in bonds provide a powerful extra prop for bank balance sheets.

The below chart shows two-year cumulative change in the (unweighted) average probability of default for (1) GSIBs and (2) AT1 issuers (based on Invesco AT1 ETF constituents).

It shows that both series peaked in Q2 2022, and have since shown a slight deterioration. However, the GSIB deterioration is slightly steeper and the AT1 group has recently shown a modest improvement.

Credit Benchmark data is updated every two weeks. End-February data flash update is now available.

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