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Erste Group senior bonds

What are senior bonds?

Bonds are - from the investor's point of view - so-called debt securities and may be issued by different issuers (e.g., banks, sovereigns, corporates, residential banks, supranational institutions such as the World Bank). In principle, bonds differ in terms of the issuer's credit rating, rank, coupon, currency and maturity.

The credit rating provides information about the default probability of a debtor. The amount of the interest on a bond depends u. a. from the credit rating. The higher the coupon, the higher the default probability.

In terms of rank, we distinguish between covered bonds (mortgage and municipal bonds), unsecured (senior) bonds and subordinated bonds. The liabilities from normal bonds are considered direct, unconditional and non-subordinated (also called senior debt). In the case of bankruptcy, these are first-ranked, i.e. having their claims satisfied before all other creditors.

How do senior bonds work?

With a bond the investor lends to the issuer the nominal amount of the bond and in return receives interest payments and at the end of the term the invested capital at 100% of the nominal amount.

The type of interest (= coupon) is defined from the beginning for each bond. Fixed-rate interest bonds offer a fixed interest over the entire term. Floating rate bonds are linked to a reference interest rate (such as EURIBOR) and are regularly adjusted to the new interest rate level. The coupons are paid on the coupon date (e.g., quarterly, semiannually, annually) and are calculated on the nominal amount. A special form are zero coupon bonds. They pay no continuous coupon. The yield from a zero coupon bond is the difference between the initial issue price and the redemption price of the bond.

A bond can be issued in different currencies. In addition, the currency risk is to be considered here.


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