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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 economies of the Central and East European countries are gaining on the old EU member states at a fast rate. The driving force behind the dynamic growth is the variety of emerging companies benefiting from rising domestic demand and increasing exports. For this reason their growth potential is by far higher than that of companies in the traditional EU markets.

Government bonds as point of reference
The amount of interest (coupon) paid by a corporate bond depends among other things on the level of interest rates of the government bonds in the respective country. The corporate bond coupon offers higher interest rates than government bonds, given that the risk associated with a company is always higher than the one related to a country. The difference between the two coupons (i.e. the spread) is based on the rating of the company. CEE corporate bonds take these facts into account and offer substantially higher rates of interest than comparable corporate bonds from more established countries to compensate for the higher risk.

How do CEE government bonds work?

New CEE corporate bonds are issued for subscription as fixed- or floating-rate securities. The dividend (coupon) is usually paid once a year, and at the end of maturity the bond is redeemed in full. As investor you know exactly what interest payments to expect. Maturities are mostly medium- to long-term.

Volume: size matters
As investor you should pay attention for the total volume raised by the company through the bond issue (i.e. the issuing volume) to be as high as possible. The more bonds of a company are in the market, the better the chances that they are actively traded. Securities that fulfil this criterion are called highly liquid. This prevents extensive price fluctuations, and as investor you can be certain to be able to sell the bond at any point in time.

Guidance for the investor
One criterion of evaluation for a bond is the rating it gets from independent rating agencies. The lower the rating, the riskier the investment – and the higher the interest rate. Companies suitable for investors are classified as “investment grade”.

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

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