Bank hybrids are disappearing, your income doesn’t have to

26 August 2026

2 mins 30 secs read

For years, ASX-listed bank hybrids were a go-to income holding for many Australian investors - familiar, franked, and anchored to the big four banks. When APRA confirmed that hybrids, or Additional Tier 1 (AT1) capital, would be phased out of the banking system by 2032, many investors were left wondering where that reliable income stream would come from next.

The reassuring answer: that income hasn't gone, it’s simply moved. For the banks, most of the capital they have to issue has just shifted to a different part of their balance sheet, called Tier 2 or subordinated debt. APRA's new prudential framework requires that major bank hybrids are replaced predominantly by subordinated debt, so as you would expect, bank-issued subordinated debt was set to grow. Interestingly, alongside the growth of major bank subordinated debt, a wider set of other quality issuers have also joined the growing trend, resulting in the non-listed, Australian subordinated debt and corporate (non-bank) hybrid market growing faster than at any point in its history.

The major banks are still the anchor

Importantly, particularly for income investors, the big four banks remain the largest issuers of subordinated debt, an exposure which continues to grow.

Combined, ANZ, CBA, NAB and Westpac issued $29.1bn of subordinated debt last year (CY2025), up ~60% versus CY2023¹.

Interestingly, a large part of that increase has come from offshore markets rather than the domestic market alone, with the majors increasingly turning to EUR, USD and SGD markets to diversify their funding. For investors who valued bank hybrids for their stability of income and the strength of the issuer behind them, subordinated debt offers a similar exposure at a higher credit quality.

A broader, deeper market has emerged

Alongside the growth in the major banks’ subordinated debt issuance, the subordinated debt and corporate hybrid market as a whole has expanded significantly since APRA's decision, giving income investors considerably more choice than they had even a couple of years ago.

Non-major bank issuers, including insurers, global issuers, utilities, property trusts, and even data-centre operators, are increasingly using subordinated and hybrid structures to raise capital, offering investors attractive yield opportunities. Developments include;

• New issuers to the corporate hybrid market, including companies such TransGrid, Melbourne Airport, Dexus, Aurizon, Lendlease, and CDC Data Centres.
• Insurers have joined in too, with QBE and Suncorp both recently issuing unlisted hybrids.
• Global issuers have added further breadth to the market, with global banks such as UBS, BNP Paribas, Barclays and Credit Agricole continuing to issue into the Australian dollar market. 

Growth of Non-Listed AUD Subordinated Debt and Hybrid market

What it means for investors

For income investors familiar with ASX-listed bank hybrids, the practical takeaway is that the opportunity to access higher yielding bank issued debt hasn’t disappeared but instead has actually widened considerably. Subordinated debt from the major banks remains the natural, stable core of the Australian subordinated debt and corporate hybrid market, while insurers, regulated utilities, infrastructure businesses and global names now sit alongside them, offering additional diversification for investors who value it.

This growth and expansion of the market is a core reason why active management matters now more than ever. Passive strategies simply track an index, which typically only captures a very narrow slice of the broader market, sometimes as little as 20%². An index in fixed income markets is built around the needs of issuers and their borrowing levels, not the preferences of investors. This means passive investing tracking a fixed income index is really a reflection of the financial interests of companies or issuers, not a deliberate view on best opportunities for investors. Active management can correct this, allowing the manager to exercise discretion while seeking to capture alpha opportunities.

At Macquarie, our dedicated team analyse every issuer and deal across the AUD subordinated debt market, constructing a purpose-built portfolio, where each position is based on merit. This selective, active approach seeks to prioritise the stability of major bank exposure, while still accessing the full breadth of the market, aiming to deliver the most attractive investment opportunities for investors.

How to access it

The Macquarie Subordinated Debt Active ETF (ASX: MQSD) provides diversified, actively managed exposure to the subordinated debt market - anchored around the major banks', with the flexibility to adapt as new issuers and securities continue to emerge to find the best opportunities for investors.