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AT1 bonds are the most subordinated form of bonds (and together with Tier 2 instruments are often called "bank capital" instruments) that rank senior only to equity. AT1 bonds have a Perpetual character (no fixed maturity), no incentive to redeem, and the payment of coupons is discretionary (coupons are paid if the bank has distributable reserves). AT1 bonds can absorb losses (be converted to equity or be written-down upon the trigger event) when the capital of the issuing financial institutions falls below a supervisor-determined level. The purpose of AT1 instruments is to have a buffer of a readily available source of capital that protects senior bondholders and depositors in times of crisis. In Europe, banks are required by the regulator to have a 1.5% of Risk Weighted Assets in the form of AT1 bonds.
Collateralized Bonds
Collateralised Debt Obligations ("CDO")
Collateralised Debt Obligations are structured products that are backed by other assets. A CDO can be thought of as a promise to pay investors in a prescribed sequence (tranching), based on the cash flow the CDO collects from the pool of bonds or other assets it owns.
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Time between Opening and Closing legs is usually a day or two. This is the term of the repo. If the term of the repo is overnight, it is called an overnight; everything else is called a term repo. Term repos are more complicated due to margin calls. The observed price of the security rises or falls, there may be margin calls to preserve the haircut.
Closing leg:
Some articles
Breaking News: In the week of September 16 of 2019 there was a huge problem in the repo market. On Sept 16 and 17. lenders disappeared from the market, leaving many who wanted short term funding without takers; this created a huge spike in the overnight and term rates (rates spiked to 10%, when Federal Reserves target rates are 2.0 to 2.25). The commotion was quelled only when the NY FED stepped in providing liquidity in the market. Speculation abounds as to the root cause. The main effect was that there was more demand for cash than there was supply.
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