Why a Rush Into European AT1 Bonds Is Alarming Veteran Investors

Additional Tier 1 bonds, known as AT1s, have been outperforming most other financial assets on the planet, producing bigger returns than some of most risk-tolerant hedge funds. The beefy yields on these instruments, issued mostly by European banks, have made them a magnet for investors.

Owning AT1s can be fraught with risk, and they’re sometimes described as high-yield investments with a hand grenade attached. The dangers were highlighted in 2023, when $17 billion of AT1s issued by Credit Suisse were written down to zero as part of a government-orchestrated bailout by the bank’s rival, UBS Group AG.