Japan¡¯s major banks are set for their busiest fiscal year in over a decade for issuing a special category of bonds that will finance higher capital requirements.
The Additional Tier 1 (AT1) bonds are considered among the riskiest forms of bank debt ranked at the bottom of the subordinated debt list and convertible into equity if the lender¡¯s capital ratio falls below a certain threshold.
Sumitomo Mitsui Financial Group priced a ?300 billion ($1.9 billion) dual-tranche AT1 bond deal on Friday, adding to a growing pipeline that underwriters estimate could push Japanese bank AT1 issuance this year to a record high.
Japanese banks are ¡°building up capital to meet companies¡¯ medium- to long-term funding needs,¡± said Masahiro Koide, joint head of the capital markets division at Mizuho Securities. A series of redemptions of AT1 bonds previously issued by financial institutions is also one factor behind this year¡¯s surge in issuance, he said.
AT1 bond issuance in Japan has more than quadrupled in 2026 from a year earlier to ?710 billion, according to data compiled by Bloomberg. The aggregate excludes Friday¡¯s SMFG deal.
The SMFG sale is part of a broader refinancing wave by banks ahead of first call dates to avoid higher interest costs from coupon resets at higher levels. Mitsubishi UFJ Financial Group and Mizuho Financial Group, have already issued AT1 bonds this year.
Expectations that the Bank of Japan will raise interest rates again to ward off inflationary pressures have also motivated banks to issue earlier to capture lower rates. The ongoing Middle East conflict has kept oil prices at elevated levels sustaining inflation¡¯s rise.
With your current subscription plan you can comment on stories. However, before writing your first comment, please create a display name in the Profile section of your subscriber account page.