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Subscribe to our free daily WealthManagement newsletters. – The latest convulsions in bond markets exposed a quirk: Some of the riskiest, most complex structures have ended up being among the most stable
Additional Tier 1 bonds — deeply subordinated debt banks issue for regulatory purposes — have been 75% less volatile than high-grade corporate bonds, according to rolling 10-day data, compiled by Bloomberg. Mainstream bonds, particularly long-dated government issues, are being hit by concerns over everything from inflation to fiscal woes to a flood of corporate supply. Their relative tranquility underscores a hunt for yield in an asset class that captured headlines when Credit Suisse zeroed $17 billion worth of AT1s in 2023.
Back then, AT1s were 10 times more volatile than high-grade bonds, and almost twice as volatile on a 10-day rolling basis during the height of the Iran War earlier this year. “There’s very little sensitivity to rates, little sensitivity to what’s going on in the background in terms of macro,” said Romain Miginiac, fund manager and head of research at Atlanticomnium SA. He quipped that they are now a risk-free asset, which as a comment “is a bit more provocative than anything else, but it’s true that if you look at it, how it’s behaved over the past 12 months, it is as stable as it gets.” On Thursday, just as US government bonds unwound all the gains from Treasury Secretary Scott Bessent’s bold intervention to stem a rise in yields, prices of AT1s globally were down less than two hundredths of a cent. There’s good reason for that.