Subordinated Notes

Hi Paul,

In simple form Subordinated notes are essentially higher-yielding corporate IOUs where you agree to wait your turn — you get paid more interest than regular bondholders in exchange for accepting you’re not first in line if things go wrong.

• Secured creditors — banks with first claim — get paid first.
• Senior unsecured bondholders — get paid next.
• Subordinated note holders — get paid after senior debt, only if there’s money left.
• Hybrid/preference shareholders — next.
• Ordinary shareholders — last, and usually get nothing.

Subordinated debt is simpler than a Hybrid security, but less accessible.

It has a fixed maturity date — you know when you get your money back. It sits higher in the capital structure queue than AT1 hybrids. It doesn’t have conversion features. But it also doesn’t come with franking credits and it’s not listed on the ASX, while access is limited more towards  wholesale investors.

The phaseout of AT1 hybrids is arguably the most significant structural change to Australian fixed income markets in a generation. A $40 billion market that provided reliable, franked income to hundreds of thousands of retail and SMSF investors is being systematically wound down — and there is no perfect replacement.

The Tier 2 subordinated debt market will grow to fill the gap from a bank capital perspective, but access is largely limited to wholesale investors (James and his team at Market Partners does invest in this area – reach out if you’d like a chat about it: [email protected]).

Failing that, one of the most often used vehicles on the ASX is the VanEck Australian Subordinated Debt ETF (ASX: SUBD). A passively managed Exchange Traded Fund that holds a portfolio of publicly issued Tier 2 subordinated bonds from Australian banks and financial institutions – its current yield is ~5.3%.

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VanEck Australian Subordinated Debt ETF (ASX:SUBD)

LAST UPDATED 23/04/2026 13:30

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VanEck Australian Subordinated Debt ETF (ASX:SUBD)

LAST UPDATED 23/04/2026 13:30