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Tutorial: Garant Bonds

What are garant bonds?

The redemption at a predefined level of the nominal amount upon maturity (considering the issuer risk) is the main focus of garant bonds. In addition, garant bonds offer participation in the performance of interesting underlyings and - depending on the bond structure - may have an annual coupon. With one bond a broad and efficient investment in an underlying (e.g. equity index, multi-asset index or theme index) is possible.

How do garant bonds work?

At the beginning of the term, the strike price is fixed. The strike price equals the closing price of the underlying. Structures with coupon offer an annual interest payment regardless of the performance of the underlying. Otherwise, there is no continuous coupon payment.

If the underlying instrument goes the expected way, investors participate in its performance. If the bond has a cap, then participation in the development of the underlying is limited by the cap, otherwise it is unlimited. If the underlying goes against expectations, the minimum redemption is according to the predefined level of the nominal amount (usually 90 % or 100 %) upon maturity.

Your benefits

With garant bonds the issuer secures the redemption at a predefined level of the nominal amount upon maturity. In addition, there is the chance on an interesting return with the participation on the underlying (e.g. equity index or multi-asset index).

Your advantages

  • Garant bonds offer the chance of interesting returns, with or without minimum coupon.
  • Investors benefit from the redemption at a predefined level of the nominal amount upon maturity and participate in the performance of national or international markets.
  • With the minimum redemption amount investors are (partly) protected against capital loss upon maturity compared to a direct investment in the underlying.

Risks you should be aware of

  • The redemption at the predefined minimum redemption level of the nominal amount only applies at maturity, investors bear the risk of the issuer.
  • During the term price fluctuations are possible, and selling prior to maturity may result in a loss.
  • Depending on the structure of the bond there may be no coupon payment during the term and return may be limited by a cap.
  • Garant bonds are not covered by any deposit guarantee scheme. Investors are exposed to the risk that Erste Group Bank AG may not be able to meet its obligations arising from the garant bond in the event of insolvency or over-indebtedness or from an official order (bail-in regime). A total loss of invested capital is possible.

How do garant bonds react to…

… rising underlying prices?
When the underlying price rises, also the value of the garant bond rises. The participation on the positive performance of the underlying may be capped. Structures with coupon offer an annual coupon payment in addition.

… stable underlying prices?
With sideways moving prices also the value of the garant bond stays relatively stable. If there is a positive performance on the valuation date, investors have a positive return. If the underlying performs slightly negatively, then the level of redemption depends on the respective minimum redemption amount. Structures with a coupon offer an annual coupon payment, regardless of the performance of the underlying.

… falling underlying prices?
If the price of the underlying is falling, then there is the capital guarantee and the minimum redemption is according to the predefined level of the nominal amount (usually 90 % or 100 %) upon maturity. Structures with coupon offer an annual coupon payment in addition.





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