Definition
Yankee Bonds are debt securities issued by foreign entities, such as governments or corporations, in the United States. These bonds are denominated in U.S. dollars and are subject to the U.S. regulations for securities offerings. They provide foreign issuers access to the vast U.S. capital market while offering US investors the opportunity to invest in foreign, non-US dollar-denominated entities without the currency risk.
Key Takeaways
- Yankee Bonds are U.S. dollar-denominated bonds issued by foreign banks and corporations, designed for sale in the United States. They are usually regulated by the U.S. Securities and Exchange Commission making them a secure investment.
- These bonds are attractive to the issuers because they provide access to the large and highly liquid American bond market. For the investors, Yankee Bonds can be a source of diversification and possible higher yields in comparison to domestic bonds.
- Yankee Bonds carry an additional risk known as exchange-rate risk, which occurs due to changes in the value of the U.S. dollar against the currency of the issuer’s country. This risk could also potentially impact the bond’s return on investment.
Importance
Yankee Bonds are significant in the world of finance because they allow foreign entities to raise capital in the U.S. market. They are denominated in U.S.
dollars and are subject to U.S. securities regulations, which are known for their thoroughness in scrutinizing issuers, thus assuring investors of the financial position and integrity of the foreign entity issuing the bonds. This aspect increases the bond’s reliability and attraction to U.S.
investors. Furthermore, Yankee Bonds provide a source of financial diversification for U.S. investors by allowing them to invest in foreign entities without having to deal with currency exchange risk.
Thus, Yankee bonds play a crucial role in stimulating global trade and integration by facilitating international capital flows.
Explanation
The purpose of Yankee bonds is to allow foreign companies and governments to raise capital from American investors. They provide foreign entities access to the large and broad U.S. debt market, regarded as one of the biggest and most liquid markets in the world. Yankee bonds can diversify an issuer’s funding sources by gaining exposure to different investor bases.
This can help companies secure better terms than they might receive in their home markets. For governments, it may present a means of circumventing local, less developed capital markets, or more stringent regulations. From the perspective of the investors, Yankee bonds present an opportunity to venture into foreign investments without leaving the U.S market. Being denominated in U.S.
dollars, these bonds shield investors from currency risk that usually comes with foreign investments. Yankee bonds are also registered with the Securities Exchange Commission (SEC) and are subject to U.S. laws, providing additional reassurances and protection to investors.
Examples of Yankee Bonds
In 1984, IBM Corporation issued Yankee bonds valued around $400 million. They decided to raise funds from the U.S market instead of their local market, marking one of the early uses of Yankee bonds by multinational firms.
Toyota Motor Corp, a reputable automobile company from Japan, is another example. In 2013, they issued Yankee bonds in the U.S. market as the interest rates were lower at that time in order to raise capital and expand their operations.
Adobe Systems Inc., a globally recognized computer software company, issued Yankee bonds in
They took advantage of the then U.S. interest rates as a strategy to raise more capital for expansion and to potentially save on interest expenses.
FAQs on Yankee Bonds
What are Yankee Bonds?
Yankee bonds are foreign bonds issued in the U.S. Bond Market by foreign banks and corporations. These bonds are denominated in U.S. dollars and subject to the securities regulations of the U.S.
Why are they called Yankee Bonds?
The term ‘Yankee’ is used to refer to something foreign that is found in the U.S., typically with charm or novelty value. In this case, the term Yankee Bonds illustrates that these are foreign bonds available in U.S. bond market.
What is the benefit of investing in Yankee Bonds?
Yankee Bonds can be beneficial for investors looking for diversification in their portfolios. These bonds can be part of an effective risk management strategy because they are influenced by both U.S. and foreign economies.
What are the risks associated with Yankee Bonds?
Like any investment, Yankee Bonds come with risks. These include exchange rate risk, country risk and in some cases, higher default risk. Other risks depend on the specific company or government that issues the bond.
Can anyone invest in Yankee Bonds?
Yes, any investor who has the necessary account permissions to invest in fixed income can invest in Yankee Bonds. However, it’s important to understand the risks involved and to consider these bonds as part of a diversified portfolio.
Related Entrepreneurship Terms
- Foreign Bonds
- Corporate Bonds
- SEC Registration
- Fixed Interest Rate
- Underwriting Process
Sources for More Information
- Investopedia: A comprehensive source of financial information including in-depth definitions, articles, videos and tutorials about various finance related topics including Yankee Bonds.
- Bloomberg: A leading global business and finance news outlet that provides real-time and archival financial and news data, including information about Yankee Bonds.
- Reuters: An international news organization providing key business, financial, national, and international news to professionals via desktop terminals, media outlets, and multiple platforms. This source will give you global perspectives on Yankee Bonds.
- Yahoo Finance: Provides financial news, data, and commentary including stock quotes, press releases, financial reports, and original content. It also offers some online tools for personal finance management which can provide insights into Yankee Bonds.
