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Tutorial: s Wohnbaubank bonds

What are s Wohnbaubank bonds?

s Wohnbaubank bonds are convertible bonds issued by s Wohnbaubank, which means that investors may exchange their s Wohnbaubank bonds for participation certificates in s Wohnbaubank at a later point in time, should they wish to do so.

The capital raised through s Wohnbaubank bonds is used for the construction of residential space in Austria. For private investors subject to Austrian tax the annual interest income of up to 4% is exempt from capital withholding tax irrespective of holding period and date of initial investment. This means that the yield after tax is higher than for ordinary bonds with the same rate of interest.

How do s Wohnbaubank bonds work?

s Wohnbaubank bonds work like any other bond (see tutorial on bonds for more information).
There are s Wohnbaubank bonds available with fixed interest rate and with floating interest rate. Interest income from residential convertible bonds of up to 4% is exempt from capital withholding tax.

Your benefits

s Wohnbaubank bonds combine interesting coupon payments with preferential tax treatment.

Your advantages

  • Interest income of up to 4% is exempt from capital withholding tax.
  • The proceeds of s Wohnbaubank bonds are mainly invested in residential housing in Austria.

Risks you should be aware of

  • Change of market interest rates and credit rating of s Wohnbaubank may lead to price fluctuations and capital loss in case of sale before maturity date.
  • The legal basis for special tax treatment may change during the term of the bond.
  • s Wohnbaubank bonds bear a liquidity risk and credit risk of the issuer.
  • There is no deposit guarantee scheme. Investors are exposed to the risk that s Wohnbaubank 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 s Wohnbaubank bonds react to…

… rising interest rates?
s Wohnbaubank bonds with fixed interest rate fall when interest rates are rising. s Wohnbaubank bonds with floating interest rate, on the other hand, benefit from rising interest rates. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the EURIBOR, an increase in the level of interest rates also means a rising interest rate for the bonds. The price of the bond tends to oscillate around face value.

… stable interest rates?
In the case of stable interest rates, neither the price nor the coupon of s Wohnbaubank bonds changes (if other criteria, e.g. the rating of the issuer, stays unchanged).

… falling interest rates?
s Wohnbaubank bonds with fixed interest rate increase when interest rates are falling. Falling interest rates, on the other hand, have a negative impact on s Wohnbaubank bonds with floating interest rate. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the EURIBOR, a decrease in the level of interest rates also means a falling interest rate for the bonds. The price of the bond tends to oscillate around face value.





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