AT1 Bond
An Additional Tier 1 bond: a perpetual, subordinated bank instrument that can be written down or converted to equity to absorb losses.
How it is identified
Test: perpetual, subordinated, with discretionary coupons and a contractual write-down or conversion trigger on a capital shortfall
Unit
qualitative
In depth
AT1 bonds exist to absorb losses while a bank is still operating, which means they can be written to zero without the bank failing — a feature, not a malfunction. Coupons are discretionary and can be skipped without triggering default, and the instrument ranks below every other creditor. India learned this in March 2020 when ₹8,415 crore of Yes Bank AT1 bonds was written down entirely while equity holders retained some value, an inversion of the usual hierarchy that led to litigation and to SEBI restricting retail access. They are sold on their high coupons and are not bonds in the ordinary sense of the word.
Worked example
An AT1 paying 11% against a 7.1% government security offers 390 basis points more. In a write-down the recovery is zero, not a reduced amount — the entire principal is extinguished by contract.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “AT1 Bond” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.