What Are AT1 (Perpetual) Bonds?

AT1 bonds (Additional Tier 1 bonds) are a special, higher-risk type of bank bond. They offer attractive yields — but come with features that have caught investors out, so they deserve careful understanding.

What makes them unusual

• Perpetual — they have no fixed maturity date; the bank pays interest indefinitely, with a call option (callable bond) to redeem them at set dates (but it’s not obliged to).
• Loss-absorbing — they’re designed to help a bank absorb losses. In severe stress, regulators can write them down (even to zero) or skip coupon payments — ahead of equity being wiped in some cases.
• Issued by banks to shore up their capital (Tier 1 capital).

Why the high yield

The elevated yield compensates for these risks: no guaranteed redemption, discretionary coupons, and the possibility of a full write-down if the bank runs into trouble — a scenario that has actually occurred and wiped out AT1 holders.

What investors should know

• Not a safe "fixed deposit alternative" despite being called bonds — the risk profile is closer to equity in a crisis.
• Credit quality is crucial — only strong, well-capitalised issuers reduce (not remove) the risk. Check the credit rating.
• Complexity — the call/coupon/write-down terms are intricate; many retail investors underestimate them. SEBI has restricted some retail access for this reason.

The takeaway

AT1 bonds can suit sophisticated investors who understand the write-down risk and are paid for it — but they are not a simple safe-income product. Read the terms fully. Education only, not a recommendation.