The financial markets shrugged off concerns about bank securities that arose in the wake of US and European bank failures in March, bidding up the price of local instruments in April. Fixed income research house BondAdviser reported that the BA AUD AT1 Index bounced back from its fall in March, rising 1.17 per cent in April. The index measures the performance of bank and financial institution instruments issued in Australian dollars – both ASX-listed and over the counter – with terms of six months or more. BondAdviser said: “April saw risk-on sentiment across the AT1 space, driving a complete reversal of the sell-off in March. We viewed spreads to be on the attractive side last month, following significant widening. This has now faded.” Another positive for the market was that on April 14, Bank of Queensland announced that following receipt of APRA approval it would redeem its A$200 million Wholesale Tier 2 Notes 4 in May. BondAdviser said there had been speculation the notes would not be called after APRA’s statement about capital security calls last November. The regulator issued a reminder to regulated entities that it has the final say as to whether a capital instrument can be called, and its approval should not be taken as a given. It wrote to ADIs, general insurers and life insurers saying they must take care to meet prudential requirements when calling capital instruments in an environment of higher credit spreads. It said that with credit spreads widening, “uneconomic calls” may create an expectation that the issuer will exercise a call option on other outstanding additional tier 1 capital and tier 2 capital instruments with call options. BondAdviser said the redemption of the BOQ notes “has helped ease concerns around extension risk on tier 2 securities.”