AT1 Hot Streak Fades as Investors Switch to Less Risky Bank Debt

Additional Tier 1 bonds have been a hot trade for the past year and a half. But after a relentless rally, the extra yield they offer over a safer type of debt is near a record low, prompting some investors to get out of the risky securities.

Money managers at Aegon Asset Management and Robeco Institutional Asset Management have been switching from AT1 bonds to Tier 2 debt, which is more senior in the capital stack. Tier 2 debt doesn’t hold the same risks as AT1 bonds, which were introduced after the financial crisis to ensure bondholders take losses first ...