The previous articles covered contracts for difference, spot trading, futures and perpetual futures and options. All four lived inside section 8 of the Income Tax Act, among other income. Bonds belong elsewhere. Holding one produces capital income under section 7 or a separate tax base under section 51ea, selling one falls under section 8, and one category is exempt outright. The same bond coupon can carry four different Slovak rates depending on who issued the bond and where that issuer sits.
What a bond is
A bond is a security confirming that the issuer has borrowed money and undertaken to repay it. The buyer is not a co-owner, as with a share, but a creditor. Everything else follows from that: a creditor has no claim on the firm's profit and no vote, but does have a claim on the agreed payments, and in insolvency ranks ahead of the shareholder.
Face value is the amount the issuer repays at maturity. The coupon is a periodic payment, usually annual or semiannual, expressed as a percentage of face value. The issue price is the price on issuance and need not equal face value. Maturity is the date the principal comes back.
A bond's market price moves after issuance, and it moves in the opposite direction to interest rates. When rates rise, older bonds with lower coupons become less attractive and their price falls far enough for their yield to maturity to match new issues. Duration measures the sensitivity of that movement. A bond with a duration of eight years loses roughly eight per cent of its price when yields rise by one percentage point. That mechanism is why the "safe" part of a portfolio can lose a double-digit percentage in a single year without the issuer ever missing a payment.
A separate category is the zero-coupon bond. It pays nothing, is sold below face value, and the entire return arises from the difference between the purchase price and the face value at maturity. Treasury bills with maturities under one year work the same way. In Slovakia this structure has its own tax chapter, covered below.
How a government bond is created: from budget to auction
A state does not issue bonds because it wants to, but because the approved budget requires it. The process is close to identical in every developed country and has six steps.
1. Funding need. The budget produces a deficit, and to it is added the volume of existing debt maturing in that year and needing to be refinanced. The sum is the gross funding need. Germany, for example, plans issuance of roughly 511.5 billion euro for 2026, of which redemptions of existing debt account for 362.4 billion euro. Most issuance therefore funds no new spending at all, it repays old borrowing.
2. Issuance calendar. The debt agency publishes a year in advance which instruments it plans to issue and in what volumes. The German Finance Agency lists fifteen auctions of ten-year Bunds totalling 82 billion euro for 2026, and 92 billion euro in five-year Bobls. Predictability is itself worth money here: an investor who knows how much paper is coming demands a smaller premium.
3. Announcement of the individual auction. A few days ahead, the agency publishes the exact instrument, the volume, the auction date and the settlement date. From that moment the paper trades on the when-issued market, conditional on being issued. That is how a market estimate of the yield forms before the auction itself.
4. The auction. Bids are submitted electronically up to a fixed deadline. There are two kinds. A competitive bid states both a volume and the yield the bidder is willing to accept. A noncompetitive bid states only a volume and accepts whatever yield the auction produces. In the United States a noncompetitive bid is capped at 10 million dollars per auction, and no single competitive bidder may be awarded more than 35 per cent of the offering.
5. Allocation. All valid noncompetitive bids are filled first. Competitive bids are then ranked from the lowest yield sought upwards and accepted until the offered volume is exhausted. The last accepted bid sets the stop-out yield, and every successful bidder pays the same price regardless of what they bid. This format is called a single-price or Dutch auction. The gap between the yield achieved and the when-issued yield is watched as a gauge of real demand.
6. Settlement and the secondary market. On settlement day the cash is debited and the securities credited to securities accounts. From that point the state gains nothing from the trading, and the price is set among investors.
Who actually buys the bond at auction
It is not the public that stands at an auction but a narrow group of institutions under contractual obligation. They are called primary dealers. There are 26 in the United States, designated by the New York Fed, the most recent addition being MUFG Securities Americas on 15 January 2026. Each is required to bid in every auction at reasonably competitive prices. The state therefore always has a buyer, it just does not know in advance at what price. In Germany the same role is played by the Bund Issues Auction Group, whose members are ranked every six months by the volume they take down.
US auction results are published split into three buckets. Primary dealers take whatever is left. Direct bidders are institutions buying for their own account. Indirect bidders are chiefly foreign central banks and funds bidding through custodians. A low dealer share reads as good news, because it means the paper ended up with end holders rather than in the inventory of dealers who still have to sell it on.
End holders are generally four groups. Pension funds and life insurers buy long maturities because they need assets whose maturity matches their future liabilities. Banks hold short government paper as the liquidity buffer regulation requires of them. Central banks buy in the secondary market as part of monetary policy. And finally funds, including bond ETFs, which package this paper into a form an ordinary investor can reach.
A retail investor rarely gets near a primary auction. In the United States it is possible through a TreasuryDirect account or through a broker submitting the bid. In the eurozone direct retail access to ordinary auctions is effectively nil, and states address that with dedicated issues aimed at citizens.
Slovakia: ARDAL and Bonds for the People
Slovak government debt is managed by the Debt and Liquidity Management Agency, ARDAL. Its auctions follow the same logic as the German or American ones, with primary dealers, chiefly large domestic and foreign banks, taking part.
Since 2025 a separate strand has been added. Government bonds for citizens are issues restricted to individuals, distributed through the branch networks of five banks: Československá obchodná banka, Slovenská sporiteľňa, Tatra banka, UniCredit Bank and Všeobecná úverová banka. The minimum investment is 1,000 euro and purchases are made in multiples of a thousand.
The first issue, in March 2025, offered a two-year bond called Investor at 3.0 % and a four-year bond called Patriot at 3.3 %. It sold out within days. The second issue, in March 2026, carried lower coupons, 2.7 % on the two-year Investor II and 3.0 % on the four-year Patriot II, and was on sale from 2 to 20 March 2026. Investor II sold out at its full 250 million euro, the combined total reached 417 million euro, and the strongest day was the first, when people bought 245 million euro of paper.
The comparison with the institutional market is worth noting. In January 2026 the state sold two-year bonds at 2.29 %, while in March it offered citizens a two-year paper at 2.7 %. At the short end it therefore borrows from its own population more expensively than from large investors. The reason is precisely the tax exemption, which lifts the net yield further and makes the product competitive against term deposits.
These bonds are admitted to trading on the Bratislava Stock Exchange, so they can be sold before maturity. Act no. 187/2025 Coll., effective from 10 July 2025, capped the selling fees at 10 euro up to a value of 10,000 euro, 50 euro up to 50,000 euro and 100 euro up to 100,000 euro. Above that, the dealer's commercial rates apply. The sale price itself is a market price, so an investor may receive less than they paid.
The best-known issues in the world
The US government bond market is the largest and most liquid debt market in the world, at roughly 29 trillion dollars. The Treasury issues five instruments. Treasury bills mature within a year and pay no coupon, being sold below face value. Treasury notes run two to ten years and Treasury bonds twenty and thirty years, both with semiannual coupons. To these are added inflation-linked TIPS and floating rate notes. The ten-year Treasury note is the reference risk-free rate for most financial models in the world.
In Europe the reference is the German market. Bundesschatzanweisungen, or Schatz, mature in two years, Bundesobligationen or Bobl in five, and Bundesanleihen or Bund in seven to thirty. Germany issued a twenty-year Bund for the first time in 2026, and has allowed stripping since 1997, meaning the separation of principal and individual coupons into separately tradable instruments. The ten-year Bund plays the same role in the eurozone that the ten-year Treasury plays in the dollar world.
The other large European issues are French OATs, Italian BTPs and Spanish Bonos. The gap between their yield and the Bund yield, the spread, is the standard measure of how the market views a particular country's risk.
EU-Bonds and EU-Bills form a category of their own, issued by the European Commission on behalf of the European Union. Auction issuance began in September 2021 under the NextGenerationEU programme, and the stock outstanding is approaching one trillion euro in 2026, making the Union the fifth largest issuer in Europe after Germany, France, Italy and Spain.
How bonds are traded
Unlike shares, most bond volume trades over the counter rather than on an exchange. The reason is structural. A company generally has one class of shares, but may have dozens of bond issues with different maturities and coupons, so liquidity fragments. Trading runs through dealers quoting prices on request.
Three practical constraints follow for a retail investor. The minimum tradable lot is often 100,000 euro on corporate issues, although government paper is frequently available in 1,000 euro units. The spread between bid and offer can be wide on less liquid issues. And prices are not publicly available in the way share prices are.
One technical detail matters. Prices are quoted as a percentage of face value and without accrued interest, as a clean price. The buyer nevertheless pays the dirty price, which includes the proportion of the coupon accumulated since the last payment date. It compensates the seller for the period during which they held the bond. That accrued interest is one of the most common places where Slovak bond tax goes wrong, and it is revisited below.
Bond funds and ETFs
Most ordinary investors do not buy individual bonds, they buy funds. The reason is practical: a single purchase replaces thousands of instruments and solves minimum lot sizes and coupon reinvestment at the same time.
The two largest bond ETFs in the world track the same type of index. The Vanguard Total Bond Market ETF under the ticker BND and the iShares Core U.S. Aggregate Bond ETF under the ticker AGG cover the US investment-grade market in full breadth, meaning government paper, mortgage-backed securities and corporate bonds, both at a fee of 0.03 % a year. An investor who wants targeted duration reaches for the iShares 20+ Year Treasury Bond ETF under the ticker TLT, which holds only twenty-year and longer maturities and runs a duration of around fifteen years. IEF and SHY cover the shorter end.
For an investor in the European Economic Area these American funds are effectively out of reach. The PRIIPs Regulation requires a key information document in the language of the home state, and US managers do not produce one. The European answer is UCITS funds with the same exposure, trading on exchanges in Frankfurt, Amsterdam and Milan. The article on the differences between ETFs, ETCs and ETNs covers that family in more detail.
For a Slovak taxpayer one other property matters more than the fee: whether the fund distributes coupons or reinvests them. A distributing fund sends cash to the account and that cash is taxable income in the year of payment. An accumulating fund reinvests coupons into its own assets and the investor receives no ongoing income at all. The tax gap between those two variants is wider for bonds than for equities, because the coupon component of the return is far larger than the dividend component.
TIPS and IBCI: bonds linked to inflation
An ordinary bond promises a fixed nominal amount. If inflation rises in the meantime, the principal returned has less purchasing power and the investor loses in real terms. Inflation-linked bonds solve this by leaving the coupon rate alone and adjusting the face value instead.
Treasury Inflation Protected Securities, TIPS, are the American version. Face value is adjusted by the CPI-U consumer price index with a roughly three-month lag. The coupon rate is fixed but is applied to the adjusted face value, so the amount paid rises as prices rise. At maturity the investor receives the higher of the two values, adjusted or original, which means deflation cannot push the principal below par. They are issued in five, ten and thirty year maturities and sold at auction like other US government paper.
The gap between the yield on an ordinary ten-year Treasury and the yield on a ten-year TIPS is called breakeven inflation, and it is the market's estimate of average inflation over that period. If realised inflation comes in higher, holding TIPS paid off, if lower, the ordinary bond did.
A European equivalent exists as well. France issues OATi and OAT€i, Italy BTP€i, Germany issues linkers known as Bundei, and Spain inflation-linked Bonos. Most of them are tied to the eurozone HICP index excluding tobacco, the French OATi to the domestic index.
The simplest way to reach this exposure from Europe is a fund. The iShares € Inflation Linked Govt Bond UCITS ETF, ticker IBCI and ISIN IE00B0M62X26, holds eurozone inflation-linked government bonds, tracks the Bloomberg Euro Government Inflation-Linked Bond index, charges 0.09 % a year and runs roughly 1.95 billion euro. The portfolio holds around 38 issues, weighted towards France, Italy, Spain and Germany. The fund is accumulating, so it pays no coupons and reinvests them, which has a direct consequence for a Slovak taxpayer set out below. It is domiciled in Ireland and has been running since November 2005.
Inflation-linked bonds are not a risk-free investment. They protect against inflation, not against a rise in real interest rates. When real rates rose in 2022, TIPS and European linkers both fell even though inflation was high. What is fixed is the real return if held to maturity, not the price along the way.
Why hold them at all when they do not earn much
Looking at series running back more than a century, the conclusion is unambiguous. Equities beat bonds over the long run and the gap is large. A bond allocation still has a place in a portfolio, but its job is not to generate return.
Its first job is cushioning drawdowns. From 2001 to 2021 the monthly correlation between equities and long government bonds was about minus 0.28, so bonds rose during equity selloffs. The reputation of a portfolio split 60 % equities and 40 % bonds rests on exactly that experience.
Its second job is rebalancing. When equities fall and bonds do not, a source of cash appears from which to buy at precisely the most uncomfortable and most rewarding moment. Without that sleeve, an investor has to rely on new savings.
Its third job is matching liabilities. Someone who knows they need a specific sum in five years gets it from a government bond of the same maturity with a certainty no equity portfolio can offer.
2022 also showed the limits of the construction. The S&P 500 returned minus 18.11 % on a total return basis that year, and the Bloomberg US Aggregate, the benchmark bond index, fell 13.01 %, its worst year on record. A 60/40 portfolio ended with a loss somewhere in the range of roughly 15 to 20 % depending on the index used, its worst calendar year since 1937. Bonds offered no protection that year because the shock came from inflation rather than from recession.
The correlation between equities and bonds has stayed positive since 2022. On Morningstar data to 30 June 2026, equities and bonds lost money together in about 14 % of months over the past twenty-five years, but in 28 % of months over the past five. At the same time, in the worst ten per cent of months bonds still cushioned the fall, only less than they used to.
The practical conclusion is modest. A bond is not a return engine, and anyone using it as one will be disappointed. It is a tool for reducing dispersion and for funding known future spending. What differs from the zero-rate era is that the investor now also gets paid for that function.
The tax regime of the coupon: five situations
This is where Slovak law parts company with itself. The same economic event, a periodic payment from debtor to creditor, carries five different tax regimes.
| What you hold | Provision | Rate | How it is paid |
|---|---|---|---|
| Government bond for citizens (Investor, Patriot) and equivalents from the EU or EEA | exemption from 1 Jan 2025 | 0 % | not reported |
| Government bond of Slovakia or another EU or EEA state | section 51ea | 13 % | tax return |
| Government bond outside the EU and EEA (the US, for example) | section 7(1)(h) | 19 % | tax return |
| Corporate bond, Slovak source | section 7(1)(a), section 43 | 19 % | withheld, settled |
| Corporate bond, foreign source | section 7(1)(a) | 19 % | tax return |
Government bonds for citizens. With effect from 1 January 2025 both the yield on government bonds for citizens under section 19a of Act no. 530/1990 Coll. on bonds and the income from selling them are exempt. The exemption does not apply where the paper is or was business property of the taxpayer. Equivalent bonds issued by another EU member state or an EEA state are treated the same way. It covers yields paid after 31 December 2024. A holder of Investor or Patriot therefore reports nothing, not even on a sale before maturity.
The separate tax base under section 51ea. From 1 January 2025 a standalone regime applies to yields on government bonds and treasury bills, both Slovak and those issued by another EU member state or an EEA state. They enter the base without any deduction, are settled through the tax return, and the rate is 13 % for yields paid after 1 January 2026. For yields paid during 2025 the rate was 16 %. A coupon from a German Bund or a French OAT belongs here, not under section 7.
Government bonds from outside the Union. The wording of section 7(1)(h) carves out those yields that fall under section 51ea. What remains in it is what section 51ea does not cover, meaning government paper of countries outside the European Union and the European Economic Area. A coupon from a US Treasury note or a British gilt is therefore taxed at 19 % as part of the separate capital income base under section 7. Under the double tax treaty with the United States, interest is taxed in the state of residence, so with a properly filed W-8BEN there is no US withholding and the whole tax is paid in Slovakia.
Corporate bonds. A coupon from a corporate bond or a mortgage bond sourced in Slovakia is income under section 7(1)(a), and the payer, usually the securities dealer, withholds the tax. Once the withholding is properly carried out the liability is settled and the taxpayer does not report the income. Where the coupon comes from a foreign source, the same rate applies but through the tax return. In neither case can any expense be claimed.
Health contributions: where they apply and where they do not
The contribution side tracks the tax side only partly, and this is where the largest gap between individual bonds opens up.
Under section 10b(1)(c) of Act no. 580/2004 Coll. on health insurance, earning capital income counts as gainful activity, with the statutory cross-reference pointing to section 7(1)(c), (f) and (h) and to section 7(2) and (3) of the Income Tax Act. Section 10b(4) further provides that activity producing income subject to withholding is not gainful activity.
A practical split follows. A corporate bond coupon attracts no contributions, whether it was taxed by withholding or through the return, because paragraph (a) does not appear in the cross-reference. A coupon from government paper of a country outside the Union does attract them, because it stayed in paragraph (h). The rate in 2026 is 16 % and the contribution is settled in the annual health insurance reconciliation, with the amount paid deductible under section 7(7) in the year of payment.
Yields moved into section 51ea remain an open question. The cross-reference in the health insurance act still points at section 7(1)(h) and section 51ea does not appear in it. A literal reading therefore leads to the conclusion that a coupon from a German Bund attracts no contributions while a coupon from a US Treasury note does, although the income is economically identical. This is a consequence of the cross-reference in the contributions legislation not having been aligned after section 51ea was introduced, rather than an intention the Act states anywhere. On larger amounts the position is worth documenting and worth watching for any statement from the health insurers.
Zero-coupon bonds and the yield at maturity
A bond without a coupon pays nothing, so none of the coupon provisions above applies. The Act deals with it separately in two places.
Under section 7(2), capital income includes the yield arising at maturity of a security from the difference between its face value and the issue price on issuance. On early redemption the buy-back price is used instead of face value.
Under section 7(3), where bonds and treasury bills are sold below face value, the income equal to the difference between the face value and the holder's lower acquisition cost enters the separate tax base at maturity.
Both cases are settled through the tax return at 19 %, and both appear in the health insurance cross-reference, so both attract contributions as well. The practical consequence is that a zero-coupon bond held to maturity is the worst available route in tax terms. The same paper sold on the exchange the day before maturity is income from the transfer of a security under section 8, and after a year of holding it can be exempt outright. The difference between two days can amount to the whole tax and the whole contribution.
Selling a bond before maturity
A sale is a different category from holding. Income from transferring a bond is income from the transfer of securities under section 8(1)(e), and under section 8(5) the deductible expense is the acquisition cost and related costs.
Two exemptions come into play. Under section 9(1)(k), income from the sale of securities admitted to trading on a regulated market is exempt where more than a year passed between acquisition and sale and the paper was not business property. Since 2024 the year must run not only from the purchase but also from the admission of the paper to the regulated market. A bond bought in a private placement off exchange does not qualify.
Where the one-year test is not met, the exemption under section 9(1)(i) of up to 500 euro is available. It is tested on the difference between income and expenses rather than on gross income, and it is shared across all income under section 8(1)(d) to (f), meaning together with sales of options and of other securities. Anything above 500 euro is taxed progressively from 19 % upwards with a 16 % health contribution added.
Accrued interest has to be revisited at the point of sale. The buyer pays the seller a dirty price including the accumulated coupon, and that same amount is part of the seller's income from the transfer of a security. The problem arises on the buyer's side. The accrued interest paid is not a deductible expense against the coupon received later, even though economically it is a return of what the buyer paid out. Anyone buying a bond shortly before a coupon date pays tax on the whole coupon, even though most of it was paid over to the previous holder. That amount can only be reflected in the acquisition cost on a later sale under section 8.
Bond ETFs: accumulating versus distributing
A holding in a bond ETF is, for the Income Tax Act, a security rather than a bond. Two consequences follow, and both favour the Slovak taxpayer.
The sale of an ETF holding admitted to trading on a regulated market after more than a year is exempt under section 9(1)(k), at 0 % and free of contributions. That applies equally to equity and to bond ETFs.
Ongoing distributions from a distributing fund are income under section 7(1)(a) as other yields from securities, at 19 %. An accumulating fund makes no distribution, so no taxable income arises while it is held and the whole return shows up in the sale price.
Combining those two rules produces a result worth noting. Hold a German Bund directly and every coupon is taxed at 13 %. Hold the same Bund through an accumulating UCITS ETF and sell the holding after more than a year, and nothing is taxed. The same economic return therefore carries 13 % or 0 % depending on the form in which it is held. With US exposure the gap is wider still, since direct holding means 19 % plus contributions.
Two cautions are in order. The exemption covers the sale of the paper on the market, not its redemption at maturity, which matters for funds with a defined maturity date. And on larger amounts the records should be in good order, given that the Financial Directorate once published and then withdrew a contested statement on ETF taxation.
Tokenised treasury bills
The past two years have produced a category joining the bond market to blockchain. Tokenised treasury bills are funds holding short-dated US government paper whose units are recorded as tokens. The segment passed ten billion dollars in February 2026 and stood at roughly 11.1 billion in March.
The largest product is BUIDL from BlackRock, launched in March 2024 and administered by Securitize, at around 2.5 billion dollars as at May 2026. It is followed by BENJI from Franklin Templeton, OUSG from Ondo Finance, and USYC. Yields run roughly in the 3.5 to 5 % range depending on product and period, generated by treasury bills, repurchase agreements and cash.
The Slovak tax classification of these instruments is open and cannot be derived by analogy from an ordinary ETF. The exemption under section 9(1)(k) presupposes a security admitted to trading on a regulated market, which a token recorded on a blockchain generally is not. Some products also credit yield by a rebase mechanism, issuing new tokens, so the investor gains quantity rather than price, which raises a further question about when the income arises. Classification therefore turns on the legal form of the particular instrument and on whether it meets the definition of a crypto-asset under section 2(ai) of the Act. This is an area where the position is worth documenting in advance rather than at inspection.
A worked example
Alongside employment income, a taxpayer held five bond positions during 2026.
Patriot from the 2025 issue, face value 20,000 €, coupon 3.3 %, paid on 2 April 2026, so 660 €. This is a government bond for citizens and the yield is exempt. It is not reported.
A Slovak government bond bought through a broker, face value 30,000 €, coupon 3.0 %, so 900 €, and a German Bund, face value 25,000 €, coupon 2.6 %, so 650 €. Both belong in the separate tax base under section 51ea. The base is 1,550 €, the rate 13 %, the tax 201.50 €.
A US Treasury note with a coupon of 780 € once converted. It falls under section 7(1)(h) at 19 %, tax 148.20 €. On top comes a health contribution of 16 %, 124.80 €, settled in the annual reconciliation.
A corporate bond of a Slovak bank with a coupon of 1,200 €. The dealer withheld 19 %, 228 €. The liability is settled, the income is not reported and no contributions arise.
Sale of the German Bund after eight months of holding. Proceeds including accrued interest 26,100 €, acquisition cost including fees 25,400 €, difference 700 €. The one-year test is not met, the 500 euro exemption under section 9(1)(i) applies, and 200 € enters the tax base. Tax in the first band at 19 % is 38 €, the health contribution at 16 % is 32 €.
Sale of IBCI holdings after three years with a gain of 2,400 €. This is a security admitted to trading on a regulated market and the one-year test is met, so the income is exempt under section 9(1)(k) from both tax and contributions.
In total: tax 387.70 €, health contributions 156.80 €. Out of 6,590 € of bond income before withholding, 772.50 € went to the public purse, around 11.7 %. The same sum received entirely from US government paper would have cost roughly 35 %, and the same sum received entirely from government bonds for citizens nothing at all.
The obligation to file is assessed on the total of taxable income, and the threshold for 2026 is 2,983.37 €. Exempt income does not count towards that total, nor does income where the liability is settled by withholding. The return here is filed for income under section 51ea, section 7(1)(h) and section 8(1)(e).
What to record
Record-keeping is simpler for bonds than for derivatives, but it has four points that cannot be reconstructed from an annual statement after the fact.
The first is the identity of the issuer. The difference between 0 %, 13 % and 19 % has nothing to do with the size of the coupon and everything to do with who issued the paper and in which state. The records need the ISIN, the name of the issue, the type of issuer and the country.
The second is the split of the purchase and sale price into clean price and accrued interest. Most trade confirmations show the two components separately, an annual statement usually does not.
The third is the acquisition date and the date of admission to the regulated market, since from 2024 the one-year test has to clear both.
The fourth is how the position ended. A sale on the market, repayment at maturity and early redemption by the issuer carry three different tax consequences, and on a zero-coupon bond the difference between them is the entire tax.
Income in a foreign currency is converted under the procedure in section 31 of the Act. For foreign coupons it is also worth holding a certificate of tax withheld in the source state, where any was withheld.
This article is a general overview, not individual tax advice, and it is neither investment nor product advice. Splitting bond income between section 51ea, section 7 and section 8, assessing the contributions side and recording accrued interest are a routine part of the work kryptotax.sk does for clients. 🇸🇰