Tutorial: s Wohnbaubank floating-rate bonds


What are s Wohnbaubank floating-rate bonds?

s Wohnbaubank floating-rate bonds are convertible bonds issued by s Wohnbaubank. The capital raised through s Wohnbaubank bonds is used for the construction of residential space in Austria. For private investors subject to Austrian tax the annual interest income of up to 4% is exempt from capital withholding tax irrespective of holding period and date of initial investment. This means that the yield after tax is higher than for ordinary bonds with the same rate of interest. Holders of s residential bonds may exchange them for participation certificates in s Wohnbaubank at a later point in time, should they wish to do so.

How do s Wohnbaubank floating-rate bonds work?

Floating-rate s residential bonds pay their interest usually once a year. The amount of interest paid is based on the development of the interest rates in the capital markets. Most residential bonds use the euro swap rate as referential rate. Interest income from residential convertible bonds of up to 4% is exempt from capital withholding tax.

Your benefits

s Wohnbaubank floating-rate bonds are mainly suitable as long-term investment. If you expect the interest rates on the capital market to remain stable or increase in the long run, a floating-rate investment is exactly right for you.

Your advantages

  • Your money earns attractive, dynamic interest payments.
  • Interest income of up to 4% is exempt from capital withholding tax.
  • You enjoy a very high degree of safety.
  • You may exchange your s residential bonds for participation certificates in s Wohnbaubank at a later point in time, should you wish to do so.

Details you should be aware of

  • Between issue date and maturity, price fluctuations are possible, which means that the sale of the bond prior to maturity may result in a loss.
  • The legal basis for special tax treatment may change during the term of the bond.
  • The coupon payments of the floating-rate tranches may fluctuate during the term of the bond.
  • There is no deposit guarantee scheme. The investor is exposed to the risk that s Wohnbaubank AG may not be able to meet its obligations arising from the bond in the event of insolvency or over-indebtedness or from an official order (bail-in regime). A total loss of invested capital is possible.

How do s Wohnbaubank floating-rate bonds react to…

… rising interest rates?
Floating-rate residential bonds benefit from rising interest rates. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the Euribor, an increase in the level of interest rates also means a rising interest rate for the bond. The price of the bond tends to oscillate around face value.

… stable interest rates?
In the case of stable interest rates, neither the price nor the coupon of the floating-rate residential bond changes.

… falling interest rates?
Falling interest rates have a negative impact on floating-rate residential bonds. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the Euribor, a decrease in the level of interest rates also means a falling interest rate for the bond. The price of the bond tends to oscillate around face value.