Rely on security, invest for the long term and remain flexible at the same time – that sounds like squaring the circle. Money Market Bonds offer investors exactly this possibility. The flexibility results from the fact that the amount of interest during the term is linked to a so-called reference interest rate and is regularly adjusted during the term. This also reduces the price risk of the bonds compared to fixed rate or Step-Up Bonds.
Money Market Bonds represent an interesting investment for those investors who assume that short-term interest rates will rise during the term of the bond. The 3-month Euribor® is usually used as the reference rate, interest is paid quarterly and is determined from the current level of the 3-month Euribor® on the interest fixing dates determined in advance. As a result, the investor participates directly in interest rate developments.
However, since short-term interest rates are currently still at a very low level, Money Market Bonds provided with a minimum interest rate (floor) that is above the current reference rate. As a result, investors can earn interest rates above the money market level right from the start of their investment. In return, however, participation in possible interest rate increases is limited in the form of a maximum interest rate (cap).
Money Market Bonds are also provided with 100% capital protection by the issuer. The investor receives the full nominal amount back at the end of the term. During the term, the course is subject to a money market bond however, market fluctuations and may be less than 100 percent.