Lower tier two crushed as Deutsche takes coupon step

Deutsche Bank sparked renewed fear among subordinated bond investors today as it said it will not call Eu1.4bn of 3.875% lower tier two bonds at the first early redemption date on 16 January, but will instead pay an 88bp over Euribor step-up. The decision led to an immediate 25bp jump in its subordinated five year credit default swaps to 241bp, with the January 2014 bonds now trading at a cash price of 80%-85% from yesterday’s mid to high 90s. But syndicate bankers remained sanguine with BNP Paribas, Bank of Ireland and HBOS all calling or announcing their intention to call bonds. Read EuroWeek on Friday for full reaction to Deutsche Bank’s surprise decision.