A process flow is disclosed for forming a MR sensor having an antiferromagnetic (AFM) layer recessed behind a bottom shield to reduce reader shield spacing and improve pin related noise. An AP2/AFM coupling layer/AP1 stack that extends from an air bearing surface to the MR sensor backside is formed above the AFM layer. The AP2 layer is pinned by the AFM layer, and the AP1 layer serves as a reference layer to an overlying free layer during a read operation. The AP1 and AP2 layers have improved resistance to magnetization flipping because back portions thereof have a full cross-track width “w” between MR sensor sides thereby enabling greater pinning strength from the AFM layer. Front portions of the AP1/AP2 layers lie under the free layer and have a track width less than “w”. The bottom shield may have an anti-ferromagnetic coupling structure.