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AT1 bank bonds trade with spreads near historic lows
The ICE CoCo Index is about 206 basis points over benchmark rates, far below its roughly 385 basis-point historical median, despite risks like discretionary coupon cancellation.
ConnectCRE reports that Additional Tier 1 bank bonds, also known as AT1s or CoCos, are trading at near-historic tight spreads despite their complex, loss-absorbing structures.
According to ConnectCRE, the ICE CoCo Index is offering roughly 206 basis points over benchmark rates, well below the index’s historical median of about 385 basis points. The outlet said the spread compression could leave investors with limited compensation for risks tied to coupon cancellation, extension features, and regulatory treatment.
ConnectCRE also notes that banks are increasingly issuing securities with 10-year rather than five-year initial call periods, making AT1s more duration-sensitive and less of a straightforward credit investment. The bonds are designed to sit above common equity but below most other bank debt, with discretionary coupons, perpetual terms, and the ability for issuers to write down principal or convert to equity if capital triggers are breached.
The outlet pointed to a past stress event, saying regulators wrote down about $17 billion of Credit Suisse AT1 bonds to zero in March 2023 as part of UBS’s emergency takeover. ConnectCRE said the loss represented roughly 10% of the global AT1 index at the time and drove spreads above 1,000 basis points before they later recovered.