BIX ARTICLE
AT1 bonds hold firm amid turmoil
Mar 21, 2026
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6 min read
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That reluctance to let go could shield the market for these so‑called “AT1s” from the sharp sell-offs seen elsewhere since the outbreak of war in the Middle East, according to a Bloomberg report.
Looking ahead, market watchers say this resilience may set the tone for how high‑yield credit weathers further geopolitical shocks – and whether a once‑niche corner of the debt markets can hold its newfound popularity or revert to its traditional role as a risky, flight‑to‑safety sell-off instrument.
AT1 bonds are a form of bank capital that sit between senior debt and equity. They were famously dumped in past crises, most notably after the collapse of Credit Suisse Group AG in 2023 wiped out more than US$17bil of such bonds.
But times have changed.
As Bloomberg notes, the roughly US$280bil asset class has seen an influx of buyers drawn by yields often closer to those of speculative‑grade debt than traditional investment‑grade instruments.
And that shift in investor behaviour appears to have altered how these securities react in times of stress.
Since the war in Gaza and wider regional escalation began, AT1s have not suffered the brutal sell-offs seen in other corners of credit markets.
“If you sell the AT1s I hold then you will never be able to buy them again,” says Richard Hodges, who manages Nomura Asset Management’s Global Dynamic Bond fund, in an interview cited by Bloomberg.
Hodges’ point reflects a fear among holders that liquidity – already thin for this type of security – could vanish completely if they exit.
He favours AT1s with high reset spreads, a segment that tends to be more in demand and therefore less volatile.
Yield hungry
For many fund managers, that illiquidity is precisely why they are staying invested now.
“Bid‑offer spreads would make it difficult to go back at a decent price,” says Fatima Luis, senior portfolio manager at Mirabaud Asset Management, in the Bloomberg piece.
She also cites macro uncertainty – particularly headlines around US President Donald Trump – as a reason to hold tight.
The result has been a surprisingly contained sell-off in AT1s even as broader markets have wobbled.
Trading data compiled by Bloomberg shows that these perpetual securities barely featured among the most‑heavily traded US‑dollar bonds in the weeks since the conflict erupted, underscoring that few investors are willing to let them go.
There are signs, however, that returns have been dented.
A multi‑currency Bloomberg index of AT1s is down about 1.6% on a US‑dollar‑hedged basis this month, according to the report.
But even that modest fall looks better than many other fixed‑income benchmarks; the index is outperforming a gauge of global investment‑grade bonds and posting far smaller total‑return losses than seen last April when Trump unveiled a suite of global tariff measures that rattled markets.
Part of the current support for AT1s is structural: there simply isn’t much new paper coming to market.
Data compiled by Bloomberg shows that the last major‑currency offering was priced by Qatar’s Commercial Bank PSC just before regional tensions spiked, and it has been nearly a month since any European lender has brought an AT1 deal to market.
For yield‑hungry funds, that scarcity, combined with attractive coupons, makes AT1s a compelling place to park cash.
These instruments pay higher interest precisely because they carry unique risks: a bank can skip coupon payments without triggering default, and in extreme stress the bonds can be written down or converted into equity.
But because many of the issuers are among the world’s largest and most capitalised banks, investors appear willing to take those risks for the extra yield.
Before the current crisis, AT1 spreads had tightened to near‑record lows, a sign of strong demand and robust returns over the past couple of years.
Even after recent weakness, most AT1 issues have delivered double‑digit gains over the past two years – a remarkable turnaround for an asset class still haunted by the Credit Suisse collapse just a few seasons ago.
Active issuer
Yet not all players are wholly unperturbed.
Swiss private bank Union Bancaire Privée UBP SA has recently said it is trimming its AT1 exposure “as a precaution”, according to Bloomberg.
The firm warns that record‑low spreads had left the sector vulnerable to repricing if volatility spikes, even if the direct impact of the regional conflict on European banks remains limited.
For individual issuers, company‑specific concerns can still rattle prices. Spreads on AT1 bonds from Deutsche Bank AG have widened in recent days after the lender disclosed a roughly US$30bil exposure to private credit, a sector currently grappling with fund redemption pressures.
“If heavier selling of AT1s does emerge, that could be a sign of broader derisking in the market,” says Raphael Thuin, head
of capital markets strategies at Paris‑based Tikehau Capital SCA, in the Bloomberg article.
For now though, he notes that trading has been orderly.
Even AT1 bonds issued by banks in the Gulf region – geographically closer to the conflict – have held up reasonably well.
That resilience appears to reflect both explicit and implicit government support for key financial institutions in those states, factors that give investors extra confidence.
Banks in Saudi Arabia have been particularly active in issuing AT1s in recent years, helping finance massive state‑led projects and preparations for hosting global events such as the FIFA World Cup in 2034.
That increased supply has given global investors more choices within the asset class, further deepening the market.
“The role of financial companies in the Gulf region is very important both for the sovereigns as well as corporate debt,” says James Wilson, an emerging markets strategist at ING Groep NV, in comments to Bloomberg.
His remarks underscore how intertwined regional banking systems are with broader economic ambitions in those markets.
As credit markets continue to digest geopolitical shocks and broader macroeconomic uncertainties, the behaviour of AT1 investors will be watched closely.
Their unwillingness so far to abandon positions may not only support current valuations, but also shape how this once‑marginal asset class is viewed by mainstream fixed‑income portfolios in the years ahead.
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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