Investors are clinging to Additional Tier 1 bonds as a rare safe haven in turbulent markets, shielding this high-risk bank debt from the broader financial selloff triggered by the war in Iran. The AT1 bonds have become increasingly scarce, with investors reluctant to part with holdings for fear of being unable to repurchase them later.

This hoarding behavior has created an unusual dynamic where Additional Tier 1 bonds are outperforming other financial instruments despite their inherent risk profile. The scarcity premium has emerged as market participants scramble to maintain positions in these instruments, which are now seen as more valuable than their underlying fundamentals might suggest.

The phenomenon reflects a broader market dislocation where traditional risk assessments have been upended by geopolitical tensions. Investors appear willing to accept higher valuations for AT1 bonds simply to ensure continued access to this corner of the market, creating a buffer against the wider selloff affecting stocks, corporate bonds, and other risk assets.