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The European bank debt market was bolstered by strong demand for a new issuance from Barclays on Wednesday, a week after UBS re-entered the market with the biggest sale of additional tier-one bonds for five years.
UK lender Barclays received more than $13bn of demand from investors for an AT1 bond that could be redeemed in June 2030, according to an investor. The yield on the debt was revised down to about 9.6 per cent from 10.5 per cent as a result of the strong demand.
The market for AT1s — which are designed to convert to equity or be written down should banks run into trouble — was hit hard in March with the collapse of Credit Suisse, which resulted in $17bn of AT1s being wiped out.
Investors were at first wary of returning to the market after the biggest losses on the products since they were introduced following the global financial crisis.
But banks, including BNP Paribas in France and BBVA in Spain, have slowly begun issuing AT1s and found willing buyers. Last week, Société Générale became the latest lender to re-enter with a $500mn offering.
Analysts were eagerly awaiting the first AT1s issued under Swiss law as a test of investor appetite, given that it was the decision by the country’s financial regulator, Finma, to write down the Credit Suisse bonds that proved so controversial.
The move has led to at least $9bn of legal claims after bondholders argued that strict conditions in their contracts that triggered the wipeout were not met.
Yet UBS received $36bn of demand for the $3.5bn bond issue last week, leading the bank to lower the yields on offer to 9.25 per cent from the more than 10 per cent initially mooted.
That marked the biggest sale of AT1 bonds by a European bank since March 2018, LSEG data shows, and one of the top five on record.
“The AT1 demand was incredible,” UBS chief executive Sergio Ermotti told CNBC on Wednesday. “Confidence is restoring not only for UBS, I would say also it is a signal to the Swiss financial system.”
The UBS sale lifted AT1 borrowing this year to $53.5bn, according to data from LSEG — down considerably on the previous four years to date, but above 2018’s figure of $49bn.
Analysts said the asset class’s rebound was helped by the European Central Bank and the Bank of England swiftly reassuring investors that they would not suffer the same fate as those holding worthless positions in Credit Suisse debt.
“The AT1 market in general has recovered very significantly and I think investors are very comfortable with the regulatory regime in Europe and the UK,” said Tim Kurpis, portfolio manager for US investment-grade credit at AllianceBernstein.
Barclays declined to comment.
Additional reporting by Stephen Morris
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