Tutorial: Government Bonds CEE


What are CEE government bonds?

CEE government bonds are debentures issued by the countries of the Central and Eastern European (CEE) region. The proceeds from the bond issues are primarily used for long-term development and infrastructure projects such as the building of motorways, modern ports, and power plants.

Growing markets

The countries in the Central and East European region are emerging economies. Their dynamic growth is carried by high private consumption or sometimes rising exports. On their way to prosperity, these countries depend on debt capital and on the import of goods, services, and know-how. The resulting current accounts deficits and the increase in the rate of inflation triggered by demand are higher than in the Eurozone. CEE government bonds allow for these facts and offer substantially higher interest payments (coupons) to compensate for the increased risk.

However, CEE government bonds still offer a sufficient level of safety. As EU members or accession candidates, these countries want to present themselves as full EU partners. If seen from this opportunity/risk position, CEE government bonds carry attractive interest rates.

How do CEE government bonds work?

CEE government bonds are primarily issued in the form of fixed-rate securities. Their dividend (i.e. coupon) is usually paid once a year. At the end of maturity, the bond is redeemed in full. This means that you, as investor, know exactly how much interest you can expect and when you will receive the initial investment back.

If you buy government bonds in foreign currencies, i.e. so-called foreign bonds, you should take the currency risk into consideration.

Your benefits

When buying CEE government bonds, you invest in emerging economies in Central and Eastern Europe. These government bonds are a good long-term investment opportunity with a well-balanced degree of risk. Even if the economic uncertainties underlying CEE government bonds are slightly higher than those associated with Eurozone government bonds, this additional risk is offset by the higher coupon payments offered. This means that CEE government bonds are therefore suitable for investors with slightly more experience who wish to exploit the opportunities in the dynamic CEE market environment.

Your advantages

  • You benefit from above-average interest payments on your investment throughout the entire term of the bond.
  • The amount of interest income and the payment dates are transparent and can be calculated in advance.
  • You enjoy a high degree of safety.
  • You can benefit from exchange rate gains

Details you should be aware of

  • The 100% capital redemption only applies to the end of maturity.
  • The currency risk may result in losses in interest and redemption.
  • The price fluctuations of CEE government bonds may be more pronounced than those in the Eurozone. The sale of the CEE government bonds prior to maturity may result in a loss.

How do CEE government bonds react to…

… rising interest rates?
Older CEE government bonds with lower interest rates fall when interest rates are generally rising. If you sell the older bonds prior to maturity, you may record a loss.

… stable interest rates?
In the case of stable interest rates, the price of CEE government bonds does not change either.

… falling interest rates?
Older CEE government bonds with higher interest rates increase when interest rates are generally falling. If you sell the older bonds prior to maturity, you may record a profit.