The Algebris Podcast

Financial credit differs from corporate credit because banks operate through layered capital structures, constantly reassessing borrower risk and holding capital against potential losses; Within that structure, AT1s sit just above equity, offering higher yield.

European banks are now fundamentally stronger than in past cycles, supported by tighter regulation, stress testing, improved profitability and better asset quality: This has made moving down the capital stack more attractive, particularly in national champion banks where the risk-reward profile may be compelling.

The asset class has also matured: a growing share of AT1s now carries at least one investment-grade rating, challenging the perception that they are purely high-yield instruments.

For investors seeking real income, European bank AT1s can sit between low-yielding investment grade bonds and more leveraged private credit or high-yield alternatives. 

In Algebris’ latest podcast, Bruno Duarte (Financial Credit Portfolio Manager), explains how financial credit works, why AT1s matter, and where the opportunities may lie today.

China is advancing at exceptional speed in AI, robotics, biotech, green transition, electric vehicles, and other key innovation sectors. Its cost advantage versus the US is enormous, while performance remains highly competitive. The main drag on the economy has been the long adjustment after the property bubble burst, which has weighed on local consumption. However, over the next two to three years this pressure may normalize, while the “new China” continues to accelerate. At the same time, Chinese equities trade at a significant discount to global markets and offer higher dividend yields. For this reason, China, especially through Hong Kong, is an underappreciated long-term opportunity in global portfolios.

Listen to Davide Serra (Founder & CEO, Algebris Investments) in his latest analysis.

The key variable for markets is the duration of the conflict between the US, Israel and Iran. A short conflict would likely result in only temporary oil price volatility, allowing markets to return to previous levels. However, a prolonged disruption could impact the Gulf region, which represents roughly 20% of global oil supply, potentially creating a physical deficit and triggering stagflation through lower growth and higher inflation. Markets have reacted quickly, but the moves so far remain relatively limited, suggesting further downside risk for risky assets. With investor positioning still very long after a strong two-year rally, the current shock may represent the early phase of a broader period of volatility.

The central macro message from the 2026 World Economic Forum in Davos is that the US may be moving away from the post-war order, forcing other nations to reinvest in defence and economic resilience.

Global growth remains strong, supported by large fiscal deficits, but that also keeps the door open to a resurgence of inflation. AI-led capex is significant and may be outpacing the realistic revenue opportunity by 2030, which could challenge current market pricing. Investors are also leaning further into global diversification, especially given a more unpredictable US policy backdrop and expectations for a weaker dollar.

We favour financials on yield-curve dynamics and operational leverage from early AI adoption, and we see gold as increasingly supported by central-bank demand and the search for politically independent reserves.

Listen to Davide Serra's notes from the World Economic Forum 2026.

Over the last few months the global economy has held up thanks to strong U.S. fiscal stimulus and widespread deficits elsewhere, but for the first time public debt worldwide is around 100% of global GDP, reducing governments’ room to respond to future shocks.

Nearly all asset classes look expensive and U.S. rate cuts are already priced in; moreover, Washington appears to be overstimulating the economy, partly with an eye on next year’s midterm elections.

There is also exuberance around AI: to justify current valuations, roughly $2 trillion of additional revenues would be needed by 2030—an implausibly large figure compared with the current revenues of the “Magnificent Seven.”

This and other takeaways in Davide Serra's (Founder and CEO, Algebris Investments) latest analysis.