Spain's BBVA and Bank of Cyprus have issued additional tier 1 bonds yesterday (13 June), the first time euro-denominated AT1s have been made available since Credit Suisse's rescue sale to UBS in March.
BBVA placed €1bn of AT1s on the market, the first time since July 2020 for the bank, with a redemption date of 21 December 2028. It set the interest rate for the bonds at 8.4%.
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The Spanish bank said demand has reached €3.1bn, tripling the initial offer.
BoC issued a much smaller amount of €220m, with an initial coupon of 11.8% per annum, payable twice a year. The redemption date for the AT1s has also been set for 21 December 2028, with the option to reset the bonds every five years.
The Cypriot bank has also called on holders of its outstanding €220m AT1s callable in December 2023 to tender the securities at a purchase price of 103% of the principal amount.
Commenting on the recent issuance of AT1s, David Everson, head of trading, fixed income EMEA at Liquidnet, said there has been a "notable uptick" in bond issuance over the last three weeks, after a "relatively quiet period" in the market.
However, he believed there will be greater uncertainty around issuers' capital structures, especially over whether some of their high-risk debt will be called, potentially impacting their funding and reputation.
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Everson continued: "This uncertainty combined with the need to roll-over their more generic debt at far greater margins and high underlying interest rates means that the credit market is far more attractive given enhanced volatility. For investors, this means that there is a huge amount of value to be had in corporate bonds as rates keep debt yields high and investors seek safe and steady returns.
"The strength of investor sentiment in corporate bond markets is on show, as we're seeing the first euro-denominated AT1 deals come to market since Credit Suisse crisis with Bank of Cyprus and BBVA both issuing. Early signs in the grey market indicate strong demand with the pair trading well above reoffer - defying predictions of a mass route predicted only a few months ago."
He also noted that the picture varied across different bond markets, with commercial real estate showing signs of strain despite typically being less volatile.
"It's evident that the over leveraged debt-laden sectors will continue to feel the heat," he concluded.
