The value of a class of convertible bonds issued by banks plunged in value on Monday after Credit Suisse’s securities were completely written down to zero by the Swiss regulator.
The Swiss Financial Market Supervisory Authority announced that all of the bank’s 16 billion francs of additional tier 1 bonds – also known as AT1 bonds, contingent convertible bonds, or CoCos – will be written down to zero as part of its merger with UBS UBS .The Invesco AT1 Capital Bond UCITS exchange-traded fund AT1 sank more than 16% on Monday. Deutsche Bank’s DB £650 million 7.125% note fell to 66 cents – its largest ever one-day drop, according to Bloomberg.
So how do AT1 bonds work? Normally these risky bonds are converted to equity when a bank’s total capital falls below a trigger level.
Source: News Formal (newsformal.com)
The market deems this bullish. Who was using those bonds as collateral?
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