Capital-secured bond
A capital-secured bond is a bond where the yield is usually tied to the development of the financial markets. A capital-secured bond combines the stability from interest instrument investments with the yield potential of the financial market. Upon maturity, the issuer of the bond repays the investor at least the face value of bond, along with the potential yield from the financial markets.
A capital-secured bond consists of two parts:
1. Interest part (bond)
The interest part ensures that upon maturity, the investor will receive at least the face value of the bond = capital security.
2. Yield part (derivative instrument)
The yield part may be tied to different types of instruments, which are used to calculate the market yield to be paid to the investor upon maturity, based on their development.
A capital-secured bond can be sold back to the issuer during the loan period at the prevailing market price. Due to changes in the market, the prevailing market price can be below the face value during the loan period. No collateral is set for the bond.
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