It has been a strong year. It may not be an all-time asset, but it is certainly a Grand Cru, given the macroeconomic turmoil and volatility seen in other asset classes. Chart 1 shows the cumulative performance, which reflects a market that has matured significantly over the last decade.
A healthy primary market
The primary emission remained solid throughout the year 2025. Order books were often more than ten times the size of the trades, and the market absorbed the high supply without tension. The pending volumes of AT1 They reached historic highs. He attractiveness of returns played an important role, but it was not simply opportunistic money seeking carry, as institutional demand was strong. The investor base has evolvedand insurers and asset managers now systematically participate, indicating that it is a structurally durable market and not dependent on anchor orders.
Extension risk: the market’s coming of age
The biggest change this year came around the risk of extension. Historically, bonds with a weak economy in the final stretch were penalized, but in 2025 they led the performance. When Deutsche Bank skipped a dollar call in April, a development that once would have sparked fears of contagion, the market barely flinched. Instead, investors focused on the strength of capital levels, the stability of regulation and the restoration of the economy, concluding that the extension was not a major concern. Whether that confidence reflects lucid analysis or complacency is debatable, but it has certainly set the tone of the year.
Liberation Day: a real stress test, calmly overcome
He Liberation Day offered one of the first tests of resilience for the CoCos in several years. Spreads widened sharply at first, but the sell-off was remarkably contained compared to historical levels and, more importantly, investors bought the dip. This reflection of «buy down» was a defining moment as it revealed that AT1s have become an established institutional asset class and not in a speculative niche. What caught particular attention was the relative stability of CoCos compared to other asset classes, such as European bank equities and credit markets in general. While bank stocks showed greater maximum declines, AT1 remained stable. This demonstrated investor confidence in the fundamental strength of European banks, which continue to operate with strong capital buffers and under rigorous supervision. The conversation around AT1s has clearly moved from existential risk to relative value positioning.
Contagion from the US: a story of sentiment and not something structural
The recent expansion of differentials of the European AT1 has reflected the contagion of tensions in US regional banking, where private credit exposures, such as the First Brands case and other loan issues, have come under pressure. This is a purely American case. The European and British banks They remain well capitalized and tightly regulated, without any of the structural vulnerabilities of US regional lenders. The spread movement appears to be driven more by sentiment than fundamentals, and if that is the case, it presents selective opportunities input for investors.
Outlook: maturity, stability and performance
Looking to the year 2026, the narrowing of spreads relative to current levels could be limited, given strong performance and tighter valuations. However, AT1s continue to offer an attractive yield of just under 6% (worst yield as at 31 October 2025), supported by the strong capital position of the European banking sector.
The year 2025 has shown that the AT1 market has reached maturity. Contingent convertible bonds are now a regular part of the fixed income toolkit, able to withstand periods of stress, reward long-term investors and can offer a combination of yield and resilience.
For investors seeking greater income and diversification in their fixed income portfolios, AT1s offer an opportunity that combines income potential, stability and exposure to one of the most robust banking systems in the world.