Near-death experience: when AT1 went to hell and back

AT1 contingent capital bonds are entering their second generation; issuers have begun refinancing the $200 billion asset class, but just two years ago the market looked close to collapse. What took it to near disaster? And how did it escape?

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It is early February 2016 when Larissa Knepper, a fixed income trader at Nomura, takes a call from a client asking her to bid on a €5 million piece of Rabobank additional tier-1 (AT1) paper. 

It’s a jittery time. Deutsche Bank’s AT1s are down to the high 80s. But this is an important real money account – the kind of name any trader would like to be doing more with. Unlike many of her peers, Knepper has gone into February with a short AT1 position.

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