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Bond Market News
Performance of APAC and Middle East Bank AT1s and Tier 2s
December 21, 2023
In the table below, we have compiled a list of AT1s and Tier 2 bonds from popular APAC and Middle East banks, sorted by change in credit spreads through the year. Make sure to switch between AT1s and Tier 2 via the tabs below the title. While page 1 lists bonds that saw the most tightening in spreads, pages 2 and 3 includes bonds that witnessed a widening in spreads.
Looking at dollar AT1s and Tier 2s from Asian banks, z-spreads broadly tightened across the spectrum. Major tightening was idiosyncratic and seen for issuers' notes that are approaching their call dates in the first half of 2024. This included Kuwaiti lender Burgan Bank's 5.749% Perp that saw a ~900bp tightening in its yield-to-call. Burgan was helped by a 52% stake sale in its Turkish unit that improved its financial position. Meanwhile Chong Hing's Perps tightened with the continued impact of its HK$ 5.3bn ($680mn) capital injection from Yuexiu in 2022. Rizal's Perps benefitted from a 15% stake sale to Japan’s SMBC. Broadly, the larger moves in tightening of these perps were idiosyncratic.
Amongst AT1s that widened, Bank East Asia's Perps saw the largest expansion. This was likely on account of the bank's exposures to the real estate sector and increasing impaired loans that later led Moody's to change its outlook to negative. At the end of last year, AT1s from the Middle East region traded tighter vs. European Bank AT1s, a phenomenon which has moderated over the course of 2023. Based on data from our bond universe, the average spread for European AT1s at end-2022 was 438bp while that of Middle East AT1s was 273bp. Currently, the average spread for European AT1s is at 348bp while that for Middle East AT1s is at 321bp.
Similar to European Tier 2s, credit spreads of Tier 2 dollar bonds from APAC and Middle East tightened as well. Among them, Turkey's Tier 2 bonds tightened the most, in-line with the sovereign performance, followed by those from Australia and New Zealand.
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