CoCos: Quirky yet intriguing ‘hybrid’ instruments with a twistThere are a variety of risks to consider when investing in AT1 Contingent Convertible bonds (affectionately known as ‘CoCos’). These financial instruments, issued by financial institutions, may appear peculiar on first inspection but, once you get to know these quirky financial instruments better, you will better appreciate their unique risk/return profile.
CoCos stand out as hybrid instruments, blending the characteristics of bonds and equity. They possess a fascinating duality: on one hand, they behave like fixed income products, offering investors regular interest payments; on the other hand, they can convert into equity under specific predefined conditions or can be written down under specific circumstances. This unique combination allows CoCos to dance between the worlds of debt and equity.
CoCos are high yield instruments, and this high yield comes from a variety of risk compensations. We focus here on three of them: conversion risk, extension risk and viability risk.
Conversion risk: the dramatic metamorphosis
One of the key risks associated with CoCos is conversion risk or write-down risk. These instruments typically have a predetermined conversion trigger, such as a decline in the issuer's capital ratio, like Common Equity Tier 1 (CET1), or a specific regulatory event. When the trigger is hit, the CoCos undergo a dramatic metamorphosis, transforming from debt into equity or can become virtually worthless. In the waterfall structure, they sit between equity and subordinated debt. Conversion risk is, therefore, higher than default risk on the subordinated bonds of the same issuer. That is already something!
Extension risk: when time tests your patience
Imagine waiting for a bus that keeps getting delayed, leaving you unsure of when it will finally arrive. That's the feeling of extension risk in the world of CoCos, since these instruments come with a feature that allows the issuer to extend the maturity date without a penalty (step-up). As an investor, this can make it challenging to predict the exact timing of cash flows, adding an element of uncertainty to your investment horizon.
Rising interest rates can be a double-edged sword. On the one hand, they are typically good for the financial sector and, therefore, reduce the conversion risk. On the other hand, they can have a significant negative impact on CoCos, especially in terms of their call features. Unlike traditional bonds that often feature step-ups, which progressively increase the spreads over time in case the bonds are not called at the given call dates, CoCos lacks such provisions. This absence of step-ups makes it economically beneficial for the issuer not to call the CoCos bond early, particularly in a rising interest rate environment. By allowing the bond to remain outstanding, the issuer can take advantage of the higher prevailing interest rates and continue paying the existing coupon, potentially saving on borrowing costs.
However, from an investor's perspective, this prolonged maturity can present challenges. As interest rates rise, the market value of fixed-rate instruments tends to decline. Investors may find themselves holding CoCos with coupons that are comparatively less attractive in the prevailing interest rate environment. Moreover, the extended maturity period can delay the return of principal, affecting investment liquidity and potentially tying up capital for a longer period than anticipated. To call a bond or not is the decision of the issuer. Besides economic arguments, reputational arguments also come into play. Some issuers, although it may be economically reasonable not to call, will not want to snub their investors base and prefer, for reputational matters, to call anyway. Quantifying the exact risk is not an exact science. Recently, all bonds that come at their first call dates have been called.
Regulatory risk: the viability trigger
As we have learned in the Credit Suisse case, this is another crucial aspect to consider. The viability trigger represents the point at which the issuer's financial health is deemed to be at risk by the regulator, even in cases where capital ratios like CET1 are well above their trigger levels. Hence, CoCos can also be triggered by regulatory intervention. If the viability trigger is activated, the CoCos might undergo conversion or be written off altogether.
It is important to note that the ‘permanent write-down’ is unique to Swiss issuances. This risk factor underscores the importance of staying abreast of regulatory developments and their potential impact on the investment. As illustrated by the Credit Suisse case, the classic waterfall structure was not respected, wherein CoCos were written down to zero while keeping equity alive. The EU/UK regulators have been almost screaming that this is not possible under their framework. And indeed, the EU point of non-viability (PONV) powers are written into statutory law within the Bank Resolution and Recovery Directive (BRRD), that clearly stipulates that instruments can only be written down to zero if shareholders have been fully wiped out and, hence, respecting the bankruptcy waterfall.
Note that in contrast to Switzerland, where it is relatively easy to use the emergency law and pass an ordinance (or add clarifications) over a weekend (as happened during the recent Credit Suisse rescue operation), the complexity of the EU, where all EU countries must agree (and in addition a valuation exercise must be carried out), makes this virtually impossible to do over a weekend or short periods of time.
The CoCo coupon conundrum
Given the assortment of risks CoCos bring to the table, it's no surprise that these quirky instruments tend to offer high coupons. Investors demand compensation for taking on the additional uncertainties associated with conversion risk, extension risk and regulatory risk. While these higher coupon rates can be alluring, it's essential to thoroughly assess the underlying risks and evaluate whether the potential rewards are worth the rollercoaster ride.
CoCos offer a blend of fixed income stability with the tantalising potential for equity-like gains. Conversion risk, extension risk and regulatory risk are the hurdles that come with this unique territory. By diligently understanding these risks, CoCos are, perhaps, the quirky kid one starts to like.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Cocos
COCOSUSDT.4HHello dear friends,
*Mars Signals Team wishes you high profits*
This is a time frame analysis for COCOSUSDT.4H
We are in the 4 hour time frame. As you can see, after breaking the resistance zone, which is white in color, and moving towards the resistance zone, the price could not move up, and after pulling back, it is moving towards its resistance. If it cannot stabilize above the resistance line, we can witness a fall again. But if it can break the resistance zone and stabilize above it, we consider the possibility of advancing to the next zone for this coin.
More
Warning: This is just a suggestion and we do not guarantee profits. We advise you to analyze the chart before opening any positions.
Take care
Cocos Finally Breakout Trendline Trendline Has Already broken In h4 timeframe While trend Is Already Up Expecting 70 to 75% bullish Wave
COCOS-BCX in long term more gain expected 💣🚀Hello 🐋
we expect to see more gain for the price in log term targets 🚀💣
before more gain, we can see correction to the downside ❌🧨
Please, feel free to share your point of view, write it in the comments below, thanks 🐋
COCOS: Will Whales Drive This Coin to $15 with Volume ++The majority of the crypto market is currently stable. One of the top coins that whales can get more interest in is cocos same time it can be driven towards important targets of 3, 9, and 15 USD.
We will closely monitor this coin in both the short term and the long term.
Upon studying patterns, it has become evident that COCOS has displayed a significant trend indicating a high possibility of a breakout. However, it's important to note that a trend pattern does not guarantee absolute accuracy and should be validated by ongoing trends. We will continue to track this coin's progress in the coming time.
There is a likelihood that COCOS will experience a breakout, allowing the coin to defy the current trend and potentially surge with increased trading volume. We anticipate that this possibility has a high chance of materializing in the coming time.
Please note that this information does not constitute trading advice. Always conduct your own research and analysis.
COCOS: CYCLE TARGET $15 BETA IDEA : 1B Marketcap If the cycle for COCOS keeps the trend, there is a possibility that it could reach a market cap of 1 billion, which may have an impact on its price action, potentially reaching $15. However, it is important to note that this is not a trading idea, but rather a view of the market's potential. As a trader, it is crucial to follow the current market trends and practice good risk management.
We will be closely monitoring COCOS in the coming weeks and observing if the trend continues. Our main focus will be on the target of $2.75, which could potentially be followed by an all-time high Target.
The most important is that the trend holds the cycle view.
This update is not trading or investing advice.
Manage in all time the risk as there is no guarantee in the markets.
The price action effect can take also for the long term.
COCOS IS BEARISHHi, dear traders. how are you ? Today we have a viewpoint to SELL/SHORT the COCOS symbol.
For risk management, please don't forget stop loss and capital management
When we reach the first target, save some profit and then change the stop to entry
Comment if you have any questions
Thank You
cocos/busd buy signalCocos/busd is in uptrend and currently
near rising support.
buy at cmp : 1.7
sl : 1.57
tp1 : 1.83
tp2 : 1.97
#COCOS/USDT | full details trade!#COCOS/USDT
🟢 Entry price: from now at 1.52 to 1.45
🟢 If you are looking for more safe entry point, you can buy the breakout above 1.62
🎯Targets:
|> 1.8
|> 1.99
|> 2.16
🔴Stop-loss: Daily candle closes under 1.3
➡️Recommended risk: 0.25%
➡️Recommended total Positions Size: 1.5%
Cocos Ascending Triangle Breakout Cocos will pump if it stays above the Green line. Below the red line is stoploss. Means if price goes below the red line then it will not pump soon. Complete signal with entry stoploss Tp is shared , check Group ✅
COCOS : BREAKOUT COCOS seems to show an interesting view with the possibility of a breakout in the coming time.
At this moment the markets are in the main view into breakdown trend.
Waiting to see if COCOS will have a confirmation coming time that could take COCOS up the HKEX:2 Target.
Opportunity for the altseason To date, the market has consolidated after a monthly pullback and there are new opportunities for growth for individual coins to turn the weekly candle into a bullish one. Unfortunately, the topcoins did not check the support with daily pinbars, as we would like, and were delayed, which greatly reduces the further growth dynamics. However, the goals are still 2250-2500 on the ETH and 32.5-35k on the BTC, and there should be at least a second attempt to grow on the retest of the previous week. But the most attention is now attracted by the dominance of bitcoin. The powerful level of 47.5% was successfully broken through and there is a trade around the intermediate 47.25. In the case of a departure below and especially a breakdown of 46.75, there is a high probability of a stable trend with test targets of 44, 43.5, 42.5 and a possible departure below by the end of the year. Even against the background of sluggish dynamics of the tops, such a decrease in dominance will give the violas an opportunity to double-check the hai. If the fall of dominance is superimposed on a new wave of top growth, then we will see very powerful breakouts on the alt.
While I continue to work with uft pros vib cvp torn perl for pnt ooki and asr atm fantokens, which retain the highest technical goals for growth. Today, torn has every chance to turn the weekly candle into a bullish one again in the 12.5-13.5 area with sufficient volatility.
Cocos Breakout AlertBuy around Green line
If price stays Above the green line, High chance of pump. Close trade If price goes Below the red line. Complete signals with stoploss entry Tp is shared with Paid members ✅
the next gifts by tornAgainst the background of statements about the lifting of sanctions, torn continues the trend. Finally, they have gained a foothold above $ 10, now this level is becoming a powerful support. Next, we can expect several waves in the range from 10 to 12.5-13.5 with further attempts to test $ 15. Not so long ago there was a small unlocking of coins, but apparently they are not in a hurry to throw them off yet. I think there is a chance of coins being thrown into circulation around $ 13, which will create additional waves and smooth out the dynamics a little, but will not cancel the goals on the test of $ 21-25 in the future. To date, against the background of the reversal of the weekly candle, it is possible to continue scalping into purchases.
we are preparing for the continuation of the trendTo date, those who do not have positions on some coins can additionally buy for the reversal of weekly candles on coins in bullish. This week, we worked out a small pullback on the monthly schedule, but there are not enough arguments to turn the monthly candle into a bearish one. Stable sales are also premature according to the quarterly schedule, the main activity of sellers should be expected with the onset of the second half of the quarter with a possible hike up to 1500.
From the current levels, the probability of a gradual return to 2100 and a further breakdown of the main long-term level of 2500 prevails, which will ensure the resumption of market growth after a major seasonal pullback in the second-third quarter. At the opening of the second half of the quarter above 2500, it will be possible to fully repay the quarterly pullback and after the flat continue moving to 3500-4500 in the summer. While I doubt that we will be allowed such a luxury.
A deeper drawdown in the market can be expected only when the current week closes below 1900. Also, a second attempt to expand the monthly candle may be next week as we approach the end of the month. There is still a small chance to throw a powerful pinbar today tomorrow for the 1750-1850 test, but taking these levels will be premature and we can expect an active payback up to 2000.
My main focus is still on uft pros vib cvp torn perl for pnt ooki and asr atm fantokens. Individual coins can turn a weekly candle into a bullish one with new overhangs.
For those who like risk, today there is also such an option as nebl. Binance has delisted it. But goals of up to $2.5+ on large timeframes have been left. They will be worked out because the project continues to develop and the listing on poloniex followed on the same day. I think we should expect listings on other exchanges soon. The coin is now well suited for scalping. But this option is dangerous, it is worth paying attention to money management.
COCOSUSDT rally after the breakoutCOCOUSDT has broken above the downtrend trendline after bouncing off the demand zone. These are signs of a potential rally, that should start very soon.
cocos/busd long callCocos/busd is in uptrend and currently near rising support.
buy at cmp : 1.56
sl : 1.51
tp : 1.62
COCOS is having a slight recoveryThere's some positive news for COCOS traders as the asset is showing signs of a slight recovery. It has entered the BULL/GREEN zone and seems to be on an upward trajectory. However, it's important to exercise caution and remain vigilant due to the unpredictable nature of the market. The heavy volatility in the market means that this upper cycle might not last long and could quickly change back to a BEAR cycle. Traders will need to be nimble and quick to adapt in order to make the most of this opportunity. Good luck to all those trading COCOS!
COCOS in the BEAR zoneWatch out. COCOS entered the Bear zone. The market maker did a great job pumping this one. The s***t coin is not due for a correction.
Cocos Getting ready for Another Bullish impulse Seems Like ready For another Bullish Impulse
Symmetrical Triangle Breakout Has already confirmed Expecting Another 70 to 80% bullish Move
COCOS 1H compression lets expand?Finger on da trigga, quick pullback to that lower VWAP weekly band or maybe we just go. If corn doesn't fail us now, its go time.
Cocos Getting ready for Another Bullish impulse Testing trendline In h4 Timeframe Incase Of Breakout expecting 30 to 35% bullish Move
look for buying opportunities after breakout