From the Collaborative Bond and Money Market Data Portal 

In the CMDportal Collaborative Bond and Money Market Data Model, the Corporate Hybrid classification appears within the field Ranking with the attribute Subordinated - Tier N/A.

Definition: Corporate hybrids are subordinated debt instruments issued by corporations that combine features of conventional bonds and equity, positioning them between senior debt and common equity in an issuer’s capital structure. They typically pay fixed or floating coupons, but are often perpetual or very long-dated, rank junior to senior unsecured debt, and include issuer call options. Coupons may be deferrable at the issuer’s discretion without constituting an event of default, giving these instruments equity-like loss-absorption and flexibility characteristics.

Benefit for Corporates: Corporates issue hybrid bonds to raise capital that is treated partly like equity by rating agencies and sometimes by regulators, while still being accounted for and taxed as debt, thereby optimising their capital structure and funding cost. Hybrid bonds receive equity credit (often 50% equity / 50% debt) from rating agencies, which improves leverage ratios and helps issuers preserve or enhance senior ratings versus issuing straight debt. They are most attractive when a corporate wants equity‑like support for its credit profile or a specific transaction, but issuing pure equity is too costly or impractical (for example when ECM markets are not active) and market conditions allow hybrids to price at a reasonable premium over senior debt.

Effects on bond markets:
Corporate hybrids primarily affect bond markets by expanding the spectrum of corporate funding instruments between senior debt and equity. Issuers benefit from lower effective leverage and improved credit metrics, as rating agencies typically grant partial equity credit (often around 50%) when assessing hybrids. For investors, hybrids offer higher yields than senior investment-grade bonds to compensate for subordination, extension risk and coupon deferral.

Investment and market-structure implications:
The corporate hybrid market is dominated by investment-grade issuers, particularly in capital-intensive sectors such as utilities, telecommunications and industrials, where balance-sheet flexibility is critical. For fixed-income investors, hybrids provide enhanced income and diversification but carry distinct risks, including call uncertainty, sensitivity to changes in credit spreads and interest rates, and the potential deferral of coupons. Their hybrid nature also means pricing is influenced not only by credit fundamentals but by expectations around issuer behaviour, regulatory treatment and rating-agency methodology, reinforcing their role as a specialised segment within corporate bond markets.