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Erste Group covered bonds

What are covered bonds?

Covered bonds are secured, fixed-income debentures such as mortgage and municipal bonds. Their special feature is the fact that on the one hand the issuing bank guarantees for the safety of the bond with its rating. And on the other hand, mortgage bonds are directly collateralised by liens on property and buildings. The value of municipal bonds is secured by claims against the public sector.

Regulated by public law and recommended
Both the issue process and the documentation of the collateral of mortgage and municipal bonds are regulated by law. The collateral of the mortgage bonds is entered into the mortgage register as list of liens. This means that the value of a mortgage bond is covered by real property. Provinces and municipalities are liable for the redemption of a municipal bond with their income from taxes and duties. The steady flow of income of the municipalities represents a safe haven in times of crises. Both kinds of bonds are therefore considered legal investments under Austrian law (Austrian Civil Code).

How do covered bonds work?

Covered bonds generate interest (coupon) payments that are fixed by amount and schedule. At the end of maturity the investor receives 100% of his money back. The invested capital is secured by collateral. Given the high degree of safety, the interest rate is moderate.


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