What Is a Global Bond?
Let me explain what a global bond is. It's a type of bond that's issued and traded outside the country where its currency is denominated. You might hear it called a Eurobond sometimes.
Key Takeaways
Here's what you need to know right away. A global bond is issued and traded outside the country of its currency denomination. These bonds can have fixed or floating rates, with maturities from one to 30 years. They're grouped into developed country bonds and emerging market bonds.
Understanding Global Bonds
When multinational corporations or sovereign entities need to raise large amounts of capital, they often turn to global bonds. These are international bonds offered at the same time in various capital markets, such as those in Europe, Asia, and America. You can get them with fixed or floating rates, and maturities ranging from one to 30 years.
Some global bonds are denominated in the currency of the issuer's home country—for example, yen for a Japanese company or euros for a German one. Others are denominated in the currency of the country where the bond is issued. Take a U.S. corporation selling a bond in Japan; it could denominate that bond in yen.
Because exchange rates fluctuate, investors usually go for foreign fixed income that offers modest returns with low volatility. I see global bonds as a solid way for you to diversify a portfolio that's stuck in one currency or one country's bonds, like U.S. bonds, since they have less correlation to foreign fixed income.
Global bonds fall into two main groups: developed country bonds and emerging market bonds. Bonds from developed countries, issued by corporations and governments, come with various maturities and credit qualities. Some are in U.S. dollars, but most use the home country's currency.
Emerging market bonds are usually issued by sovereign governments, not corporations. They're often denominated in dollars and come with high interest rates because of the higher perceived risk from economically unstable countries.
Global Bond vs. Eurobond
Global bonds are sometimes called Eurobonds, but they have extra features. A Eurobond is an international bond issued and traded in countries other than the one where the bond's currency is denominated. It's issued in a currency that's not the issuer's domestic one.
For instance, if a French company issues bonds in Japan denominated in U.S. dollars, that's a Eurobond—specifically, a Eurodollar bond. There are also Euroyen and Euroswiss bonds.
A global bond is like a Eurobond but can also be traded and issued in the country whose currency values the bond. Using the same example, a global bond would be the French company issuing U.S. dollar-denominated bonds in both Japan and the U.S. markets.
