Sub debt plunges after Santander makes holders an offer they can't refuse

Santander callable subordinated debt fell by as much as 10 points in price yesterday, after the Spanish bank announced late on Tuesday that it is offering holders the chance to swap into lower yielding senior debt. Investors took the “invitation” as a clear signal that the bank does not intend to call the lower tier two debt, as investors had previously assumed it would. “There is a whiff of coercion about this exchange,” wrote Newedge’s Bill Blain in a note to investors this morning.

The fall in Santander callable sub debt – which is now trading to its legal maturity with an 8.5% yield – dragged down other financial bonds with a soft maturity. Those from fellow Spanish banking giant BBVA were said to be down around two points.