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Finance

Japanese investors flock to megabanks' subordinated debt

TOKYO -- Yield-hungry Japanese insurance companies and other domestic institutional investors are aggressively pursuing a type of perpetual subordinated bond issued by the country's three megabanks.

Such hybrid subordinated convertible debt is known as aditional tier-1, or AT1. When the issuer's capital is impaired beyond a predetermined trigger level, due to write-offs on bad loans, for instance, these debt instruments are automatically converted into stock. The issuer could arbitrarily stop paying interest as well. The higher risks are compensated by higher returns.

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