GBP AT1 Options – My Top 2 Picks

• Yield to call of around 12%.
• Perp with call (August 2024). Coupon reset to 5y Gilts (4.473%) + 8.307% = ~13% at today’s rates. Highest coupon reset amongst the GBP AT1 complex.
• From today’s perspective, the back-end spreads look reasonably wide, and I think extension risk is quite low.
• Callable 5 years after the first call.
• CET1 trigger @7% with plenty of capital buffer currently
• Fundamentals for the bank, in terms of capital, asset quality, liquidity and profitability, are strong.

• Call will largely depend on where rates and spreads are at that time, as well as what happens in the AT1 market between now and then (e.g., if non-calls become more common and more acceptable). Note: this has historically not been the case.
• The market volatility and the upcoming recession in the UK mean there is some uncertainty over future performance. A deterioration in asset quality with rising credit losses looks inevitable. However, VMUKLN should be able to absorb this quite comfortably.

• Yield to call of 11%.
• Perp with call (September 2027). Coupon reset to 5y Gilts (4.473%) + 6.955% = ~12% at today’s rates. Second highest coupon reset amongst the GBP AT1 complex.
• From today’s perspective, the back-end spreads look reasonably wide, and I think extension risk is quite low.
• Callable anytime after the first call.
• CET1 trigger @7% with plenty of capital buffer currently
• Fundamentals for the bank, in terms of capital, asset quality, liquidity and profitability, are strong.

• Call will largely depend on what happens in the AT1 market between now and then (e.g., if non-calls become more common and more acceptable, note: this has historically not been the case.) as well as where rates and spreads are at that time.
• The upcoming recession in the UK and market volatility mean there is some uncertainty over future performance for Barclays. A deterioration in asset quality with rising credit losses looks inevitable. However, Barclays should be able to absorb this quite comfortably.

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