AT1 bonds are risky but back on investor radar after YES Bank episode

AT1 bonds are hybrid instruments and pay a slightly higher rate of interest compared to similar non-perpetual bonds.

Wealthy investors and corporates are turning to additional tier-I (AT-1) bonds of large banks in search of higher yields in a declining interest rate environment.

Investors are now allocating as much as 10-20 per cent of their debt portfolio in such bonds, said experts, with bonds of State Bank of India and HDFC Bank traded frequently and preferred the most. ICICI Bank, Bank of Baroda, and Axis Bank are some of the other preferred banks.

AT-1 bonds pay a slightly higher rate of interest compared to similar, non-perpetual bonds. Banks have the right but not the obligation to pay back