Trading in Deutsche Bank's so-called 'CoCo' bonds in September has soared to levels more than seven times those of the previous month as Germany's biggest lender struggles to allay investors' concerns over its funding needs.
Speculation is mounting that the German government will provide some sort of support for the country's biggest lender, which faces a $14 billion U.S. fine and whose shares on Tuesday fell to a record-low of 10.18 euros .
The German government on Wednesday denied a report in daily newspaper Die Zeit that a rescue plan was being prepared in case Deutsche was unable to raise capital to pay for costly litigation.
Contingent convertible bonds, known as CoCos, are converted into equity when a bank's capital level falls below a certain threshold.
Concerns that a large fine from U.S. authorities will hit Deutsche's capital reserves are behind the trading surge, as it raises the risk that the CoCos will hit their conversion trigger point.
Deutsche's share price has fallen nearly 20 percent this month, and is down more than 50 percent this year .
Meanwhile the bank's bonds have also slumped, with the 6 percent coupon CoCos down to 73 cents on the euro from 83 cents over the last two weeks. This has pushed the yield up to 13 percent from around 10 percent, according to TradeWeb data.
Figures from Trax, a subsidiary of MarketAxess, show that the volume of these CoCo that have changed hands this month has surged to 162.7 million euros, or a daily average of 8.6 million euros.
That's already more than August, July, June and May combined, and on a daily average basis is more than seven times August's average of 1.13 million euros.
Measured by trade count, it's a similar picture. Some 296 trades have been conducted so far this month, according to the Trax figures, more than double every month's total since February.
The figures are for the 19 trading days this month up to and including September 27. Trax provides post-trade services for around two thirds of all fixed income transactions in Europe.
September will be the most frenetic month for Deutsche bond trading since February, when world markets were rocked by fears over economic growth, the effectiveness of central banks' policies and plunging oil prices.
In response to that volatility which hammered the value of its shares and bonds, Deutsche announced in February it would buy back more than $5 billion in senior debt, saying that the market was pricing its bonds incorrectly.
(Reporting by Jamie McGeever; Editing by Rachel Armstrong, Greg Mahlich)