Deutsche Bank AG received approximately €10 billion in investor bids for its €1.5 billion Additional Tier 1 (AT1) bond, indicating strong demand for high-yielding risky debt. This sale occurred shortly after the bank decided not to call a similar bond, a move which previously might have deterred buyers from participating in a new debt sale. Nevertheless, investors' appetite for high-yielding assets led to the largest order book for an AT1 sale in the euro currency so far this year, signaling a shift in sentiment regarding call skips by banks.

The perpetual bond, callable in six years, was priced with a 7.125% coupon, lower than the initial 7.75% discussed, amid a spread rally prompting investors to seek higher yields for better returns. Notably, Deutsche Bank did not provide comments on this matter. Marek Ozana, a portfolio manager, noted that market acceptance of non-call events based on economic grounds by issuers like Santander or Deutsche Bank has increased.

The 7.125% coupon on the AT1 bond represents Deutsche Bank's lowest payout on such debt since April 2022, with a spread of 460 basis points over mid-swaps being the narrowest since 2021. The decision not to call the $1.25 billion AT1 bond was influenced in part by potential losses due to a weaker euro, as revealed by CreditSights' analyst Simon Adamson. Although Deutsche Bank will call a separate $1.5 billion AT1 bond of 7.5% notes in April, the previous sale was not redeemed.

AT1 bonds are the initial layer of bank debt absorbing losses in financial distress situations. While investors typically anticipate banks to redeem these bonds at the earliest opportunity when feasible, recent instances of lenders not calling AT1s have caused unease among investors. Despite past market disruptions, investor tolerance for such deviations has increased, as illustrated by Banco Santander's skipped call in 2023, which was deemed uneconomical to replace.