Researcher Morningstar has given NAB's latest issue of hybrids, Capital Notes 3, the thumbs up, with the rating: "subscribe".The notes are fully paid, subordinated, perpetual unsecured notes with a scheduled conversion date of June 2028. NAB can call the securities in June 2026.The notes will pay the 90-day bank bill swap rate plus a margin of 4 to 4.2 per cent. Morningstar expects the margin to be 4 per cent and the issue size to be as much as A$1.75 billion. Distributions are expected to be fully franked."The margin range provides an attractive total return on both an absolute and relative basis to our current fair value curve of major bank [hybrid] securities,' it says.Morningstar says the near-term outlook for hybrid pricing is "stable". "Risks include a global backdrop of increased market volatility, the royal commission fallout and potential impact of Labor's proposed franking policy. On the other hand, our major banks remain very well capitalised and profitable, while supply dynamics remain favourable given the near-term shortage of AT1 reinvestment opportunities."Morningstar says the margins on the secondary market have contracted in the New Year, after blowing out at the end of 2018. "ASX-listed AT1 security prices have remained resilient in the face of increasingly volatile underlying equity prices. The inherently lower expected volatility that comes with sitting higher up the capital structure and the continued strength in bank capital accumulation over recent years has supported this."The average margin for major bank hybrids is currently around 3.4 per cent, which makes NAB's pricing look attractive.However, the average term to call of hybrids on issue is less than the 5.5 year term to call of NAB's issue. "So a premium to the average trading margin is warranted," Morningstar says.