Comment by: Anonymous. Posted 9 years ago [2014-07-09 01:15:42]

I haven't read the SG research. It seems to me, though, that the AT1 bonds move closer to trigger levels due to shorting of common equity ("death spiral") only if trigger levels incorporate market capitalization value rather than just book value. Are trigger levels really dependent on market price of common? Either way, I continue to dispute coco valuation in the range 108-112 on "common sense" grounds. Cocos are subordinated equity - it doesn't make sense that they should be valued above par at typical coupons. Surely somebody somewhere must have published the trade idea of going long the common and short the cocos.