The future of bank hybrids

Australia's hybrid model is different to the rest of the world - and that's a good thing for income.

Summary: Changes to the regulatory environment for banks has caused significant growth in the bank hybrid market. This growth has largely been taken up by retail investors. Recent news from international markets suggests that distributions on these securities are at risk but our analysis suggests otherwise, as Australian banks are posting high profits and are incentivised to keep paying distributions on hybrids.

Key take out: Bank hybrids are complex and are not a like for like replacement for term deposits. However, interest payments on these securities are as secure as equity dividends but with far less volatility in the price.


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