Derivatives that track bonds at the heart of Credit Suisse rescue slide

The logo of the Swiss bank Credit Suisse is seen in Zurich
The logo of the Swiss bank Credit Suisse is seen in Zurich, Switzerland March 20, 2023. REUTERS/Denis Balibouse

LONDON, March 20 (Reuters) - Derivatives that track the value of key bank debt fell sharply on Monday, after UBS (UBSG.S) agreed to rescue rival Credit Suisse (CSGN.S), forcing a massive writedown of the latter's additional tier-one debt as part of the deal.

Invesco's AT1 Capital Bond exchange-traded fund (INAT1.L), which tracks the value of AT1 debt, dropped 14% in early trading, while WisdomnTree's AT1 CoCo bond ETF was indicated 3% lower.

Additional tier-one bonds, known as AT1s, are a type of contingent convertible debt that make up part of the capital buffers that regulators require banks to hold to protect themselves in times of market turmoil.

If a bank's capital levels fall below a set threshold, AT1s can either be converted into equity or are written off, as they were in the case of Credit Suisse, which had to write off around $16 billion worth.

Reporting by Amanda Cooper; Editing by Dhara Ranasinghe

Our Standards: The Thomson Reuters Trust Principles.