Different types of international bonds (foreign bonds Eurobonds Global bonds Sovereigndebt)

written by: Jack Travers; article published: year 2006, month 09;


In: Categories » Legal and finance » Bonds and Leads » Different types of international bonds (foreign bonds Eurobonds Global bonds Sovereigndebt)

A foreign bond (called Yankee bond in the US, Samurai bond in Japan, Bulldog bond in the UK) is a bondissued in a country's national bond market by an issuer not domiciled in thatcountry where those bonds are subsequently traded.

  • Regulatory authorities in the country where the bond is issued impose rules governing the issuance of foreign bonds.
  • Issuers of foreign bonds include national governments and their subdivisions, corporations, and supranationals (an entity that is formed by two or more central governments through international treaties).
  • They can be denominated in any currency.
  • They can be publicly issued or privately placed.

Eurobonds have the following features:

  • underwritten by an international syndicate.
  • offered simultaneously to investors in a number of countries at issuance.
  • issued outside the jurisdiction of any single country. Therefore, they are not registered through a regulatory agency.
  • in practice they are typically registered on a national stock exchange. Why? Some institutional investors are prohibited from purchasing securities that are not registered on an exchange. The registration is mainly intended to overcome such restrictions. However, most of the Eurobond trading occurs in the over-the-counter market.
  • Make coupon payments annually.

Types of Eurobonds:

  • There are a large variety of Eurobonds with different features. For example, deferred-coupon bonds, step-up bonds, dual currency bonds, etc.
  • If an Eurobond is denominated in US dollars, it is called Eurodollar bond. Example: A US$ bond issued by Ford and sold in Japan.
  • "Plain vanilla", fixed rate coupon bonds are called Euro straights, which are unsecured bonds.

A global bond is a debt obligation that is issued and traded in both the USYankee bond market and the Eurobond market. Issuers of global bonds typicallyhave high credit quality, and have large fund needs on a regular basis. Thefirst global bond was issued by the World Bank. Example: A US$ bond issued bythe Canadian government, and sold in the US and Japan.

Sovereign debt is the obligation of a country's central government. Compared withgovernment debt obligations by entities in a particular country, sovereign debtof that country have lower credit risk and greater liquidity. Government canraise funds by issuing foreign bonds, Eurobonds and domestic bonds, or byborrowing from banks through syndicated bank loans.

Governments use the following methods to issue new debt:

  • Regular auction cycle/single-price method: this is the same method used by the US Treasury.
  • Regular auction cycle/multiple-price method: this method is similar to the one used by the US Treasury, except that winning bidders are awarded securities at the yield they bid, not at the stop yield.
  • Ad hoc auction method: auctions are announced when market conditions are favorable.
  • Tap method: bonds from a previously outstanding issue are auctioned.

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