NAB Listed Bonds
Glossary of terms
General terms
| Item | Definition | Explanation |
|---|---|---|
| Issue Margin | AKA Coupon Margin Floating rate securities pay a variable interest rate comprised of a changing benchmark reference rate (for instance, the Bank Bill Swap Rate) plus a fixed margin, which is also known as the issue margin.
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If you own a FRN (floating rate note) and the Bank Bill Swap (BBSW) rate rises, the coupon paid will also rise. If rates fall, the coupon paid will decrease. |
| First call date | The earliest date a security may be redeemed before maturity by the issuer. | On the call date, the issuer has the choice to either extend the security to legal maturity, or to call the FRN (ie terminate). If extended, the issuer will pay an increased fixed margin to the bond holder. If called, the bond holder will receive the par value and will not receive any more coupons. |
| Maturity Date | The end of a bond’s life, when capital must be repaid to the investor. The maturity date is the date on which the issuer (borrower) must repay the principal and any accrued interest to the investor.
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At maturity date, the principal amount becomes due and is repaid to the investor and interest payments (coupons) are no longer paid. |
| Franking level | If franked, your assessable income should include the franking credit, but you may be entitled to a franking tax offset. | |
| Type | There are various types of debt securities available in the market. The returns, maturities, and associated risks, vary depending on the security. | Different types of debt securities offer different terms and features, giving investors a variety of securities that could match their investment strategy. |
| Optional deferral | Certain bonds will accrue interest over its life and will be paid out along with the principal when the bond matures. Coupons deferred could potentially be cumulative and compounding. Coupons deferrable at issuers option. |
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| Mandatory deferral | Certain bonds will accrue interest over its life and will be paid out along with the principal when the bond matures. Coupons must be deferred on certain gearing/interest levels being breached. |
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| Dividend Stopper | Some securities may include ‘distribution stoppers’ that prevent the payment of distributions to ordinary shareholders in the event distributions to hybrid security holders are deferred. Different types of debt securities offer different terms and features, giving investors a variety of securities that could match their investment strategy. | A term which states that the issuer will not, with a specified period of time (the ‘stopper period’), pay a coupon on another security or class of securities if it doesn’t pay a dividend on the security in question. Following a deferred coupon, issuer will not call other securities of equal or lower ranking until coupons have been resumed and paid for a certain period of time. |
| Coupon frequency p.a | Defines how a coupon is paid |
Things to consider
Liquidity risk
For unlisted fixed income investments, there may not be a buyer when you wish to sell.
Interest rate risk
If interest rates rise, the price of bonds in the market fall.
Issuer default
In the unlikely event of an issuer default, your coupon payment and return of principal may be impacted.
How to invest in fixed income
Unlisted fixed income
Invest in unlisted bonds through the NAB Access Bond Service.
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