Short answer: Both are bonds issued by the big four banks. Senior unsecured bonds rank ahead and have simple terms. Tier 2 bonds rank behind them, can be converted into shares or written off if APRA decides the bank is not viable, and are usually callable, so they pay a higher coupon. On the big four's floating rate notes on Candour Capital's range, the median margin is 0.85% over BBSW for senior and 1.90% for Tier 2, so Tier 2 pays about 1.05% a year more.
| Senior unsecured | Tier 2 | |
|---|---|---|
| Ranks | After deposits and covered bonds | After senior bonds |
| If the bank is not viable | No conversion clause | Can be converted to shares or written off |
| Term | Mostly 3 to 5 years | Mostly 10 or 15 years, callable 5 years before maturity |
| Bonds on our range (big four) | 75 | 63 |
| Median floating margin | BBSW + 0.85% | BBSW + 1.90% |
| Current coupon at BBSW 4.83% | 5.68% | 6.73% |
Deposits and covered bonds, then senior unsecured bonds, then Tier 2, then Additional Tier 1 (AT1), then shares.
54 of the 63 big-four Tier 2 bonds on our range can be called five years before maturity. Banks have generally called Tier 2 at the first call date, but a call needs APRA's approval and is never guaranteed. Many Tier 2 bonds pay a fixed coupon until the call date and float at BBSW plus a margin after it.
Since January 2026 APRA has required the big four to hold extra loss-absorbing capital equal to 4.5% of risk-weighted assets, mostly met with Tier 2, which is why the big four issue Tier 2 regularly.
General information only. It does not take into account your objectives, financial situation or needs and is not a recommendation. Investment opportunities through Candour Capital are for wholesale and professional investors only. Read the offer documents and seek professional advice before investing.