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Deutsche Bank’s riskiest bonds have jumped sharply in response to its turnaround plans announced over the weekend, just over a year after they helped fuel a sell-off in financial debt across Europe.
The German bank first outlined its plans to raise capital on Friday, and yesterday added further details regarding its new strategy, aiming to put a year of market turbulence behind it.
The move was well received by investors. A €1.75bn Deutsche “additional tier 1” (AT1) bond, a kind of debt exposed to losses if the bank runs into trouble, is trading at 97 cents on the euro, up by 6 per cent since Friday afternoon to its highest level since September 2015.
Bank bonds of this kind benefit from higher levels of equity, because losses are triggered when a lender’s capital levels fall below a certain threshold.
The bond was at the centre of a market sell-off early in 2016, when a confluence of factors, from regulatory uncertainty and the prospect of missed coupon payments to low interest rates and anemic growth, hit European bank bonds and shares. The debt traded as low as 71 cents on the euro.
Since then, risky bank bonds in Europe – including those issued by Deutsche – have rallied hard. Deutsche suffered another market collapse in September, when its bonds fell again.
Investors who bought the bond at its September lows are now up by more than 30 per cent.
Deutsche Bank shares were down 6.3 per cent at pixel time.