Tier 2 Kangaroo Bonds – BNP & Santander

April 2025

By Jenna Hayes

Volatility can create opportunities in markets and it’s worth highlighting what is happening with tier 2s kangaroos. We rarely emphasise stock price movements for Kangaroo issuers, but the current divergence between stronger equity valuations and weaker bond pricing highlights a compelling trade opportunity.

As shown below, the share price for both BNP and Santander is up circa 40% since Jan 1st.

Source: Bloomberg.

Interestingly, despite these equity rallies, BNP subordinated notes have notably cheapened and Santander Tier 2s are still trading around issuance levels.

Two factors appear to be driving this divergence:

General Weakness in Tier 2 Market: Australian major bank Tier 2s have also widened during the same period, but we think this weakness in kangaroos is overdone. With BNP Tier 2 currently at around +200bps, there’s considerable value given increased equity subordination and the clearing of previously heavy local inventories. This sets the stage for potential outperformance from here.
Asian Market Rotation: Following the sell-off in AT1s, many Asian accounts rotated away from AUD Kangaroo bonds and into USD and EUR AT1 securities. However, with offshore AT1s now rallying back, a reverse rotation into AUD Kangaroo bonds could provide additional tailwinds for these securities.

Please see pricing below :

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