Additional Tier 1 bonds (AT1s) are part of a family of bank capital securities known as contingent convertibles or ‘Cocos’. Convertible because they can be converted from bonds into equity (or written down entirely), and Contingent because that conversion only occurs if certain conditions are met, such as the issuing bank’s capital strength falling below a pre-determined trigger level.
This ‘loss absorbing mechanism’ is the key difference between AT1s and regular bonds, and it means AT1s are typically the highest-yielding bank bonds investors can buy, since bondholders expect to be compensated for the additional risks.