About

• Additional-Tier 1 (AT1) bonds are perpetual debt instruments issued by banks to raise money and build up their core equity capital. 
  • A perpetual instrument is one with no maturity date, implying that the issuer – a bank in this case – does not pay the principal amount back to investors but makes periodic interest payments throughout the life of the bond.
• In practice, however, AT-1 bonds typically come with a ‘call option’, which means that the bank issuing these instruments can redeem them or repay investors after a specified period.
• For AT-1 bonds, banks typically shell out a higher rate of interest. 
• However, there are certain features of the instrument that make them riskier than several other bonds.
• If a bank faces financial stress, it can hold off interest payments or pay a lower amount.
• Most alarming for investors is the clause which permits banks to write off AT-1 bonds in case of severe financial stress.