AT1 Bonds Are Now Seen as High-Reward Bet on Interest Rate Cuts

Additional Tier 1 bonds may be the biggest winners in global credit markets if central banks start cutting interest rates.

The risky bank debt “could outperform all credit peers in 2024,” Bloomberg Intelligence strategists Mahesh Bhimalingam and Heema Patel wrote in a note on Wednesday. Global AT1s — also known as contingent convertibles — may have gains of more than 7%, helped by their high initial coupons, less expensive spreads and “higher correlation with credit’s expected yield rally from rate cuts,” they said.

Jeremie Boudinet, head of investment grade credit portfolio management at La Française Asset Management, has a ...