Investors are "far too complacent" on Additional Tier 1 bonds, the riskiest type of bank debt, and spreads now appear too tight, according to investors at Man Group.

The AT1 market has seen strong demand recently, pushing yields lower and compressing risk premiums. However, Man Group strategists argue this enthusiasm overlooks the inherent dangers of these perpetual, loss-absorbing instruments.

Spreads on AT1 securities have narrowed significantly, reflecting investor confidence that banks will continue to call bonds at first opportunity. Yet the asset class remains vulnerable to regulatory changes, interest rate shifts, and bank-specific stress events.

The warning comes as global regulators continue to scrutinize bank capital structures, and some jurisdictions have already imposed restrictions on AT1 coupon payments during periods of financial strain.