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Mortgage bonds

What are mortgage bonds?

Mortgage bonds are collecting bonds with a par value of CZK 10,000 and determined interest yield (coupon) which can be either fixed or variable (it normally depends on the six-month interbank PRIBOR rate). Mortgage bonds with a fixed coupon are intended for clients who want to get a predetermined fixed yield for a determined period. Mortgage bonds with a variable coupon are intended for investors who invest their money in the long-term and want to use the increase of interest rates. Bonds with a variable coupon should be bought in periods of low interest rates, because the investor has the opportunity to share the yield from their future growth. Mortgage bonds are covered by mortgage claims under granted mortgage loans, and they rank among safest forms of investment. Česká spořitelna offers a broad scale of the bonds with various coupon amounts and maturities.

How do mortgage bonds work?

The interest yield on mortgage bonds bearing a fixed interest is normally paid out once a year at predetermined dates, mortgage bonds with a variable coupon pay out the yield interest every six months. On the maturity date, the bond nominal value is paid out together with the last coupon. The price for which the bonds are bought is also important for the actual investment yield. When current yields on the bond market are lower than the mortgage bonds interest yield, mortgage bonds are sold for a higher price than their nominal value and vice versa. Therefore the current yield to maturity, calculated from the current selling price and yields paid out in the future, can be lower or higher than the mortgage bonds interest yield. When interest rates change, the value of bonds with variable coupons fluctuates much less (in comparison with bonds with fixed coupons).


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