OREANDA-NEWS. Additional Tier 1 (AT1) issues announced by ABN AMRO Bank and Intesa Sanpaolo last week are likely to pave the way for further AT1 issuers, says Fitch Ratings. We believe that banks with very strong credit profiles and/or national champions will be the most prolific issuers of AT1 instruments, at least in the short term. Similar to previous quarters, supply is likely to remain volatile, largely reflecting the sensitivity of the nascent asset class to event risk and abrupt changes in market sentiment.

Second tier players with weaker credit profiles and emerging markets banks, which issued sizeable amounts of AT1 bonds in 2014 and 1Q15, have been largely absent from this market since 2Q15. This is partly due to heightened investor risk aversion, uncertainty about the timing of a US Fed rate hike and the yuan's devaluation on 11 August, which led to broad market volatility. As the AT1 markets mature, second tier banks may be in a stronger position to issue AT1 bonds in a variety of market conditions.

Despite bouts of market volatility, AT1 pricing continues to tighten. This largely reflects the quality of the issuers, all highly rated core European banks, who are not capital constrained and can therefore wait for favourable issuance conditions. For instance, almost half of the total AT1 issuance to date in 3Q15 was issued over a four-day period, between 7 and 11 August.

AT1 issuance in July and August reached USD13.5bn, surpassing the USD11bn for 2Q15. Volumes have been dropping, however, and are lower than the USD31bn in 1Q15 and USD32bn issued in 4Q14. Total outstanding AT1 volumes will likely markedly exceed USD200bn before year-end.

AT1 issuance in 2015 is, in our opinion, on course to set a new record, as highlighted in our latest "EMEA Financials Bond Market" report, available by clicking on the link below. Fitch also publishes a regular AT1 tracker, also accessible through the link.