Regulators want Additional Tier 1s (AT1s) to be more like equity. Would bond investors buy them?

Over the past twenty years, emerging markets have experienced a significant growth spurt: their policies are stronger, their financial systems are steadier, and their behaviour during global stress looks far closer to that of developed markets than it once did. The following seven graphs serve to illustrate the increasing convergence between both markets.

The credit universe will enter the upcoming year with historically narrow spread levels. Spreads began tightening during the post-COVID recovery and have remained compressed through 2023 to 2025. By mid-2025, investment-grade corporate spreads in Europe and the United States were near the tightest levels seen since the financial crisis. Fundamentals have strengthened, but valuations leave little room for error. Are investors still being paid for the risks they are taking at current spread levels?