Trading of securities on stock exchanges
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Subordinated bonds
Collective bonds with a nominal value of usually CZK 10,000
and with a fixed or variable interest yield
Subordinated bonds
Subordinated bonds are global notes usually with a nominal value of 10,000 CZK and with a fixed or variable interest yield (coupon). They reflect the creditworthiness of the issuer and simultaneously offer a higher yield in comparison with senior bonds and mortgage bonds.
The purchase of a subordinated bond will enable you to save money for a predetermined period and gain a higher yield in comparison with senior bonds and mortgage bonds. The payout of the bond interest yield and nominal value is guaranteed by their issuer.
Your advantages
- Thanks to a fixed maturity date, other investments can be planned.
- The current yield to maturity together with the bond selling price is published daily in the bond price list.
- Bonds can be purchased at branches of Česká spořitelna or also via SERVIS 24
You should know
- The bond selling and purchase price changes every day due to yield changes on the bond market. If an investor keeps bonds to the maturity date, price fluctuations will not affect its yield at maturity.
- A subordinated bond offers a higher fixed yield as reward for the increased credit exposure to the issuer
- Bonds are offered in the form of a global note - Česká spořitelna purchases and sells bonds by transfer of notes 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 purchase.
- 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.
- A yield to maturity is the yield of a bond held to its maturity date. 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 fixed coupon with a different period to maturity and coupons of varying amounts.
- In the period between the payments of the interest yield (coupon), the aliquot interest yield (AIY) is determined as part of the nominal 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.
- Issue additions of bonds distributed by Česká spořitelna are available at branches and on the website of Česká spořitelna.
- As of 1 August 2013 the principles contained in the Communication from the Commission on the application rules concerning state aid to the benefit of banks in connection with the financial crisis (2013/C 216/01) are applied to the provision of state aid. Under these principles, all capital formation measures, including the conversion of subordinated debts to equity, should be exhausted before providing support for restructuring in any form whether for recapitalisation or to reverse the bank’s impaired assets. For subordinated bondholders these principles mean that they must participate in reducing the lack of capital, while their participation can either take the form of converting a bond into shares or a full write-off of their principal.
What else should you know
A fixed coupon is paid out once (or twice) a year, always on a predetermined date. The bond nominal value is paid out together with the final coupon on the maturity date. The price for which the bonds are purchased is also important for the real investment yield. At the time when the current yields of this type of instrument on the bond market are lower than the bond interest yield, bonds are sold for a price higher than their nominal value and vice versa. Therefore, the current yield to maturity of the subordinated bonds with a fixed coupon calculated on the basis of the current selling price and yields paid out in future is lower or higher than the bond interest yield.
Income from holding and selling foreign bonds and structured notes (ISIN does not start with CZ...) is not subject to final withholding tax, but is subject to individual taxation, and if not exempt from tax, the taxpayer is obliged to declare this income in the relevant section of a tax return.
... 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 are smaller in subordinated bonds with a variable coupon because changes in market interest rates will be reflected in the level of their next coupon rate.
... 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 are smaller in subordinated bonds with a variable coupon because changes in market interest rates will be reflected in the level of their next coupon rate.
- Bonds are offered in the form of a global note - Česká spořitelna purchases and sells bonds by transfer of notes 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 purchase.
Taxation of investment yields
Terms of purchase and sale of bonds and structured notes
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