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Subordinated bonds

What are subordinated bonds?

Subordinated bonds are collecting bonds with the nominal value of CZK 10,000 and fixed or variable interest yield (coupon). They reflect the creditibility of issuer and simultaneously offer a higher yield in comparison with senior bonds and mortgage-backed certificates.

How do subordinated bonds work?

The fixed coupon is usually paid once a year, the variable coupon is normally paid twice a year, always on determined dates. 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 of that type of instruments on the bond market are lower than the bond interest yield, the bonds are sold for a higher price than their nominal value and vice versa. The current yield till maturity of subordinated bonds with fixed coupons, calculated from the current selling price and yields that are to be paid out in the future, is therefore lower or higher than the bond interest yield.

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