European banks issued the most Additional Tier One (AT1) bonds in the third quarter since early 2023, just before Credit Suisse's collapse froze the market, the Association for Financial Markets in Europe (AFME) said on Friday.

Banks in the July to September period issued 8.7 billion euros ($9.2 billion) of the shock-absorbing debt, the most since the 9.3 billion euros issued in the first quarter of 2023, the AFME data showed.

WHY IT'S IMPORTANT

The rise in issuance in AT1 debt shows banks and investors are becoming more confident about an asset class whose future was highly uncertain last year, a relief for regulators who have encouraged the adoption of such bonds as part of post-financial crisis reforms.

CONTEXT

AT1s are bonds designed as shock absorbers that can be written off or converted into equity if a bank's capital levels fall below a certain threshold, providing a cushion at times of market turmoil.

The decision by Swiss regulators last year to wipe out $17 billion of Credit Suisse AT1 bonds but pay some money to shareholders roiled investors, given debt traditionally ranks above equity in the payout order, and effectively froze the market in March 2023.

BY THE NUMBERS

AFME said European banks have issued a total of 19.3 billion euros of AT1 capital so far this year, with 45% coming in the third quarter.

The spread on AT1 bonds over risk-free government debt - a gauge of the risk premium investors demand to hold the assets - narrowed to 339 basis points (bps) in the third quarter, 57 bps below February 2023, AFME said.

($1 = 0.9457 euros)

(Reporting by Harry Robertson. Editing by Dhara Ranasinghe and Mark Potter)