The return of corporate hybrids - and what it means for AUD credit

Corporate hybrids are re-emerging as a more active part of the Australian dollar credit market.

Over the past decade, the AUD credit market has nearly doubled in size, drawing issuance from a broader set of corporates. Growth has accelerated further post-Covid, particularly from 2023, led by fixed-rate credit, defensive corporates and subordinated bank sectors.

In periods where credit spreads are tight, corporate hybrids can offer investors a different way to earn additional spread. Rather than increasing exposure to weaker issuers, investors can remain largely within investment-grade credit and move down the capital structure, earning additional spread as compensation for subordination risk, structural complexity and potentially lower liquidity.

This paper explores what is driving the resurgence, what these instruments are and the principles investors can use to assess where value lies.

Key takeaways:

1. Supply has surged. AUD non-financial corporate hybrid issuance reached roughly A$7.5 billion in 2025, close to four times the prior year, with a further A$5.4 billion priced in 2026 to 2 June 2026. For a market that managed almost no issuance in 2023, it has now become one of the more active pockets of AUD primary supply.
2. A regulatory tailwind. APRA's December 2024 decision to phase out the bank Addditional Tier 1 market from 1 January 2027 is redirecting income-seeking demand toward corporate hybrids.
3. Favourable ratings treatment changes. Hybrids have always carried partial equity credit. Moody’s 2024 methodology lifted qualifying corporate hybrids to 50% equity credit, harmonising US treatment with Europe and giving issuers a durable, capital-efficient reason to keep coming to market.
4. Not bank capital. Corporate hybrids carry no point-of-non-viability trigger i.e. they do not convert to equity. That is a fundamental distinction from bank AT1, and it shapes how the instrument should be analysed and priced.