Hybrids
In your opinion what is the best bank hybrids currently around at the moment for yield
The Latest Q&A
Answer
Hi Bill,
Before focusing on yields, it is important to understand the structural backdrop. In December 2024, APRA confirmed it would progressively phase out Additional Tier 1 (AT1) hybrid securities issued by Australian banks. The new prudential framework takes effect from 1 January 2027, with the final first call dates on existing hybrids extending through to 2032.
In practical terms, this means around $40bn of bank hybrids will ultimately be redeemed, with no new issuance to replace them. The major banks have already stepped back from issuing new AT1 securities, which means the hybrids still listed on the ASX are effectively the final generation of these instruments.
That said, it is worth noting that Macquarie, the insurers and other corporates will still be able to issue hybrids, while some of the major bank notes still have more than four years left to run. We currently hold three hybrids in the Active Income Portfolio:
- ANZ Hybrid (AN3PI) — first call in March 2028, yielding 6.75% to first call
- Suncorp Hybrid (SUNPI) — first call in June 2028, yielding 6.8% to first call
- Westpac Hybrid (WBCPK) — first call in September 2029, yielding 6.9% to first call
Most bank hybrids are yielding around these levels. Of the three, Suncorp is our preference, as it is likely to roll into a new issue, giving holders the option to transition into a new note at $100 face value.
Macquarie is also likely to remain an issuer, given these securities are issued via Macquarie Group rather than Macquarie Bank. MQGPF and MQGPG are two longer-dated issues currently yielding above 7% we like.
While hybrids still look relatively attractive, spreads are now at historically low levels, and in some cases higher yields are available elsewhere in the listed market, including notes such as DN1, which also has a call date.
chart
Major Bank Hybrids – Source MST Financial
chart
Major Bank Hybrids – Source MST Financial
