Mortgage Bonds
Global notes with a nominal value of 1 CZK or 10,000 CZK
and determined interest yield, which can be fixed or variable
Mortgage Bonds
Mortgage bonds (MBs) are global notes with a nominal value of 1 CZK or 10,000 CZK and determined interest yield (coupon), which can be fixed or variable (usually depending on the six-month interbank rate PRIBOR). MBs with a fixed coupon are intended for clients who want to gain a fixed yield for a predetermined period. MBs with a variable coupon are intended for investors who invest their money for a longer period and want to make use of the expected increase in interest rates. It is advantageous to buy bonds with a variable coupon in a period of low interest rates, because the investor has the opportunity to participate in the higher yields thanks to the expected increase in interest rates. Mortgage bonds are covered by receivables from mortgage loans provided and are one of the most secure forms of investment.
The purchase of MBs with a fixed yield will enable you to save money for a specific period, and if you keep the bonds to their maturity date and for a predetermined yield. By purchasing MBs with a variable coupon you can make use of the increase in interest rates. The payout of the MB interest yield and nominal value is guaranteed by their issuer.
Your advantages
- For MBs with a fixed coupon the investor gains a predetermined fixed yield.
- For MBs with a variable coupon the investor has the opportunity of participating in the yield from the future increase of market interest rates.
- Thanks to the fixed maturity date, other investments can be planned.
- Mortgage bonds are covered by receivables from mortgage loans provided and are one of the most secure forms of investment.
- The currents prices of MBs are published daily in the bond price list, the current yield to maturity is also listed for MBs with a fixed yield.
You should know
- The MS selling and purchase price changes every day due to the yield changes on the bond market. If an investor keeps MBs with a fixed yield to the maturity date, yield changes on the bond market will not affect its final yield.
- A yield to maturity is the yield of a bond held to its maturity. It is based on the current bond selling price and future interest yields. The yield to maturity is used to compare the yields of bonds with a different period to maturity and coupons of varying amounts.
- The price for the procured sale of senior bonds, structured bonds and structured notes, subordinated and other bonds is expressed in percentages of the trade volume. You can find details in the Price List.
- In the period between the payments of the interest yield (coupon), the aliquot interest yield (AIY) is determined as part of the interest yield, to which the bondholder is entitled for the period from the issue date or from the date of the final coupon payment calculated up to the trade settlement date. The AIY is automatically added to the bond price and can be positive and negative.
- You can be find issue additions of bonds issued by Česká spořitelna on the investment portal www.investicnicentrum.cz.
What else should you know about Mortgage Bonds?
The interest yield for fixed interest MBs is paid out usually once (or twice) a year on a predetermined date. The bond nominal value is also paid out together with the final coupon on the maturity date. The price for which bonds are purchased is also important for the real investment yield. At the time when the current yields on the bond market are lower than the MB interest yield, bonds are sold for a price higher than their nominal value and vice versa. Therefore, the current yield to maturity calculated on the basis of the current selling price and yields paid out in future could be lower or higher than the MB interest yield. When there are changes in interest rates, the value of bonds with a variable coupon fluctuates less in comparison with bonds with a fixed coupon.
… increasing interest rates?
An increase in interest rates on the market results in a fall in prices of already issued bonds with a fixed coupon. If current interest rates are higher than those at the time that the bond was issued, under otherwise identical terms and conditions the bond is sold for a price lower than its nominal value. Price fluctuations of MBs with a variable coupon are smaller than price fluctuations of MBs with a fixed coupon.
… stable interest rates?
Under otherwise identical terms and conditions, stable interest rates do not affect the bond price.
… falling interest rates?
A fall in interest rates on the market results in an increase in prices of already issued bonds with a fixed coupon. If current interest rates are lower than those at the time that the bond was issued, under otherwise identical terms and conditions the bond is sold for a price higher than its nominal value. Price fluctuations of MBs with a variable coupon are smaller than price fluctuations of MBs with a fixed coupon.
Bonds are offered in the form of a global note - Česká spořitelna purchases and sells bonds by transfer of notes (securities) in the register of shareholders. The transfer is settled within 2 business days after ordering a trade. If an investor pays the price of the purchased bond, a share in a global note is credited to the investor’s asset account within 2 business days after ordering the trade.
Terms of purchase and sale of bonds and structured notes
Taxation of investment yields
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