CoCos or Contingent convertible bonds came into existence just after the financial crisis and were immediately popular with both investors for the additional yield they offer and regulators. For regulators, these instruments became the answer to banks’ capital prayers because they cleared up the uncertainties of existing hybrids by converting into equity at a pre-set trigger and price. They also act as a cushion between senior bondholders and shareholders, who will suffer first if capital is lost. As interest rates have continued to trend lower since the end of the crisis, CoCos have become more popular thanks to their…
What Happens To CoCos When Rates Go Up?
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