Eurobond
A Eurobond is a debt instrument that's denominated in a currency other than the home currency of the country or market in which it is issued. Eurobonds are frequently grouped together by the currency in which they are denominated, such as eurodollar or Euro-yen bonds. Since Eurobonds are issued in an external currency, they're often called external bonds. Eurobonds are important because they help organizations raise capital while having the flexibility to issue them in another currency.Issuance of Eurobonds is usually handled by an international syndicate of financial institutions on behalf of the borrower, one of which may underwrite the bond, thus guaranteeing the purchase of the entire issue.
Eurobond
Definition
A Eurobond is a debt instrument denominated in a currency other than the home currency of the country or market in which it is issued. Eurobonds are typically grouped by the currency in which they are denominated, such as US dollar or Japanese yen-denominated Eurobonds. Because Eurobonds are issued in an external currency, they are often referred to as foreign currency bonds.
Origin
The concept of Eurobonds originated in the 1960s when bonds denominated in US dollars began to appear in the European market. These bonds were initially issued to circumvent US domestic regulations and tax policies. Over time, the Eurobond market expanded to include various currencies and different types of issuers.
Categories and Characteristics
Eurobonds can be classified based on the currency of denomination, type of issuer, and maturity. Common currencies include US dollars, Japanese yen, and euros. Based on the type of issuer, Eurobonds can be categorized into government bonds, corporate bonds, and financial institution bonds. Based on maturity, Eurobonds can be classified into short-term, medium-term, and long-term bonds. The main characteristics of Eurobonds include internationalization, diversity, and flexibility.
Comparison with Similar Concepts
Eurobonds are similar to domestic bonds and foreign currency bonds. Domestic bonds are issued in the home market in the home currency, while foreign currency bonds are issued in the home market in a foreign currency. Eurobonds, on the other hand, are issued in the international market in a foreign currency.
Specific Cases
Case 1: A multinational corporation issued a batch of US dollar-denominated Eurobonds in the European market to raise funds for its expansion projects in Asia. Due to the stability and international recognition of the US dollar, these bonds were well-received by investors.
Case 2: A developing country government issued a batch of Japanese yen-denominated Eurobonds in the international market to raise foreign exchange reserves. Due to Japanese investors' positive outlook on the country's economic prospects, these bonds were successfully issued, bringing much-needed foreign exchange funds to the country.
Common Questions
Question 1: What are the main risks of Eurobonds?
Answer: The main risks of Eurobonds include exchange rate risk, interest rate risk, and credit risk. Exchange rate risk arises from fluctuations in the exchange rate between the bond's currency and the investor's home currency. Interest rate risk is the impact of changes in market interest rates on bond prices. Credit risk is the risk that the issuer may not be able to repay the debt on time.
Question 2: What are the advantages of investing in Eurobonds?
Answer: The advantages of investing in Eurobonds include portfolio diversification, higher returns, and hedging against domestic market risks. Due to the international nature of the Eurobond market, investors can choose bonds from different countries and regions, achieving portfolio diversification. Additionally, some Eurobonds may offer higher yields than domestic bonds.
