Derivatives that track bonds at the heart of Credit Suisse rescue slide

LONDON (Reuters) - Derivatives that track the value of key bank debt fell sharply on Monday, after UBS agreed to rescue rival Credit Suisse, forcing a massive writedown of the latter's additional tier-one debt as part of the deal.

Invesco's AT1 Capital Bond exchange-traded fund, which tracks the value of AT1 debt, dropped 14% in early trading, while WisdomnTree's AT1 CoCo bond ETF was indicated 3% lower.

Additional tier-one bonds, known as AT1s, are a type of contingent convertible debt that make up part of the capital buffers that regulators require banks to hold to protect themselves in times of market turmoil.

If a bank's capital levels fall below a set threshold, AT1s can either be converted into equity or are written off, as they were in the case of Credit Suisse, which had to write off around $16 billion worth.

(Reporting by Amanda Cooper; Editing by Dhara Ranasinghe)