Tutorial: Garant Bonds

What are Garant Bonds?

Capital protection, i.e. repayment of the nominal amount in a predefined amount at maturity (subject to issuer risk), is the main focus of Garant Bonds.

In addition, Garant Bonds offer participation in the performance of interesting underlyings. With one bond a broad and efficient investment in an underlying (e.g. equity index, multi-asset index or theme index) is possible. The participation in the underlying can be e.g. 1:1, with or without cap, or there is a fixed bonus payment in case of a positive or sideways performance of the underlying.

Some Garant Bonds offer a minimum coupon that is paid out - usually annually - regardless of the performance of the underlying.

How do Garant Bonds work?

The strike price is fixed at the beginning of the term. In the case of Garant Bonds with a coupon, an annual interest is paid (irrespective of the performance of the underlying), otherwise there is no ongoing interest payment.

If the underlying performs in the expected direction, investors participate in its performance. If the Garant Bond has a cap, participation in the performance of the underlying is limited by the cap, otherwise participation is unlimited.

If the performance of the underlying is negative, the capital guarantee applies, with the minimum repayment being a predefined amount of the nominal amount (usually 90% or 100%) at maturity.

In case of Bonus Garant Bonds, a fixed bonus payment is made if the performance of the underlying is positive or constant, regardless of the extent of the positive performance of the underlying.

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 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 or limited by a predefined bonus payment. 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. A Bonus Garant Bond offers a fixed bonus payment also if the underlying performance is sideways. 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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