Table of Contents
What Is a Eurobond?
Let me explain what a Eurobond is directly: it's a debt security you issue in one country, but it pays interest and principal in a currency that's not from your home country. You'll often see them grouped by their currency, like eurodollar or Euro-yen bonds. Since they're in an external currency, we call them external bonds. They're crucial because they let organizations like yours raise capital with the option to use another currency.
When it comes to issuing these, an international syndicate of financial institutions usually handles it on behalf of the borrower. One of them might underwrite the bond, guaranteeing they buy the whole issue if needed.
Key Takeaways
- The term 'Eurobond' means the bond is issued outside the borders of the currency's home country; it doesn't mean it was issued in Europe.
- Eurobonds are important because they help organizations raise capital while having the flexibility to issue them in another currency.
- Many Eurobonds are unregistered and trade in bearer form.
- Many Eurobonds are issued in emerging economies.
Understanding Eurobonds
You should know that Eurobonds are popular as a financing tool due to their flexibility. They allow issuers to pick the country of issuance based on regulations, interest rates, and market depth. For investors, they're appealing because they often have small par values, making them a low-cost option. Plus, they have high liquidity, so you can buy and sell them easily.
Remember, 'Eurobond' just indicates it's issued outside the currency's home borders—it doesn't tie to Europe or the euro. For instance, a company could issue one in Japan but denominated in U.S. dollars.
Background
The first Eurobond came out in 1963 from Autostrade, the company running Italy's national railroads. It was a $15 million eurodollar bond, designed by London bankers, issued at Amsterdam Airport Schiphol, and paid in Luxembourg to cut taxes. This gave European investors a safe, dollar-denominated choice.
Issuers range from multinational corporations to governments and supranational organizations. A single issuance can exceed $1 billion, with maturities from five to 30 years, though many mature in under 10. They're particularly useful for issuers in countries without large capital markets, offering diversification to investors.
Delivery
In the early days, Eurobonds were physically delivered to investors. Now, they're issued electronically via services like the Depository Trust Company (DTC) in the U.S. or the Certificateless Registry for Electronic Share Transfer (CREST) in the U.K. They're typically in bearer form, which helps investors dodge regulations and taxes. Bearer form means no registration, so ownership is proven just by holding the bond physically—no records kept.
Market Size
The global bond market has over $100 trillion in outstanding debt. Since many Eurobonds are unregistered and in bearer form, exact figures are hard to pin down, but they likely make up about 30% of the total. More and more issuance comes from emerging market nations, where governments and companies look for deeper, more developed borrowing markets.
Other articles for you
Institutional investors are large entities that manage and invest significant funds on behalf of others, influencing markets more than individual retail investors.
Unrestricted net assets are flexible donations to nonprofits that can be used for any legitimate purpose, unlike restricted ones with specific conditions.
An opco is an operating company in a structure that separates business operations from property ownership to gain financial advantages, often used in REITs.
Time value is the part of an option's premium that reflects the time left until expiration, influencing its overall extrinsic value.
The declining balance method accelerates depreciation by recording larger expenses in an asset's early years and smaller ones later.
Roll yield is the return from rolling futures contracts, positive in backwardation and negative in contango.
This text explores trading psychology, highlighting how human biases and emotions impact decisions in financial markets.
Impaired credit describes a decline in creditworthiness that makes borrowing harder and more expensive, but it can often be repaired.
The FIRE movement focuses on extreme saving and investing to achieve financial independence and retire early.
The International Organization for Standardization (ISO) develops and publishes international standards to ensure quality, safety, and reliability in products traded globally.