Definition
A Eurobond is an internationally traded bond that is denominated in a currency not native to the country where it is issued. It is issued by a multinational corporation or government and can be sold in various countries all over the world. Eurobonds offer investors a way to diversify and hedge against foreign exchange risks.
Key Takeaways
- Eurobond refers to a type of debt security that is issued in a currency other than that of the country or market in which it is issued. As a result, it holds an integral role in international finance, allowing borrowers to access investment from overseas and lenders to invest in foreign projects or entities.
- Eurobonds are typically underwritten by international syndicates and categorized by the currency in which they are denominated. Different types of Eurobonds exist, including Eurodollar bonds, Euroyen bonds, and Euro sterling bonds, amongst others. The name does not imply they are solely related to Europe or the Euro currency.
- Eurobonds are mostly unregulated, enabling companies to tap into global investment easily. However, it’s important for investors to know that Eurobonds involve certain risks, including exchange rate risk, potential political and economic instability of issuer’s country, and lower transparency due to lack of regulation.
Importance
The finance term “Eurobond” is important because it represents an international loan issued in a currency other than that of the country or market in which it is issued.
This instrument allows issuers such as companies or governments to raise capital in a foreign currency, effectively expanding their investor base while potentially lowering borrowing costs compared to issuing in their home market.
Similarly, investors achieve exposure to foreign-interest-rate movements and a chance for potential profit from an asset domiciled in a different currency.
Hence, Eurobonds play a crucial role in global finance as a key component of diversification, managing foreign exchange risks, improving market efficiency, and fostering global economic integration.
Explanation
Eurobonds serve a critical role in the global financial sector as a tool primarily used by multinational corporations, governments, or international organizations to raise large amounts of capital. The primary purpose of a Eurobond is to finance international projects, support global expansion for companies, or aid government funding for infrastructural or developmental programs.
Issued outside the jurisdiction of any one country and denominated in a currency different from that of the country where it is issued, Eurobonds offer the issuer the ability to access investment capital available in foreign markets. In addition to raising capital, Eurobonds may offer certain benefits compared to domestic bonds, such as potentially lower borrowing costs and regulatory requirements, and a broader investor base.
The structure and terms of a Eurobond can be tailored to meet the specific needs of the issuer, and attractive for investors seeking diversification or certain risk-return trade-offs. Hence, they form a vital part of the global bond market and assist in the smooth conducting of international finance.
Examples of Eurobond
Gazprom’s Eurobonds: Gazprom, one of the world’s largest producers of natural gas, located in Russia, has issued Eurobonds to international investors to raise funds. These bonds, denominated in dollars and euros, allow the company to get the real benefits of diversification, gaining access to larger capital markets outside Russia.
Apple Inc’s Eurobonds: Apple Inc, the American multinational technology company, issued its first-ever Eurobond in
The company raised billions of euros to fund their shareholder return program while taking advantage of the low interest rates prevalent in the European markets at that time.
Brazil’s Eurobonds: In 2015, Brazil, represented by the National Treasury, issued Eurobonds of two maturities- 10 years and 30 years, valuing
25 billion euros each. It gave Brazil an opportunity to reach out to global investors that operate in other currencies. This issuance helps to anticipate borrowing needs, in case of any negative future scenario that may arise in the international market.
Eurobond FAQ
What is a Eurobond?
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be issued by any organization, including governments and corporations. The bond is issued outside the jurisdiction of any single country, typically in London.
Who can issue a Eurobond?
Both corporations and governments can issue Eurobonds. They are usually issued by international syndicates and are sold to investors in countries other than the one in whose currency the bond is denominated.
What are the benefits of Eurobonds?
Eurobonds can offer a number of benefits. For issuers, they provide the opportunity to borrow in a different currency, which could be advantageous if the issuer believes the foreign currency will depreciate over the term of the bond. Also, Eurobonds can be sold in countries with lower borrowing costs. For buyers, Eurobonds can have advantageous yields compared to bonds issued in their home country.
How risky are Eurobonds?
As with any bond, Eurobonds come with risk. This can include default risk, where the issuer may not be able to make repayments, and exchange rate risk, where changes in the value of the currency the bond is denominated in against the investor’s home currency can impact returns.
What is the difference between a Eurobond, foreign bond, and global bond?
A Eurobond is issued in a currency not native to the country where it is issued and is offered for sale in countries other than the one in whose currency the bond is denominated. A foreign bond is a bond issued in a domestic market by a foreign issuer in the domestic market’s currency. A global bond is similar to a Eurobond, but it is also sold in the country whose currency it is denominated in.
Related Entrepreneurship Terms
- Yield
- Maturity Date
- Interest Rate
- Coupon Payments
- Bearer Bond
Sources for More Information
- Investopedia: A comprehensive resource for investing and finance education. You can search for “Eurobond” to find various articles and definitions.
- Financial Times: An international daily newspaper focused on business and economic current affairs. Use the search bar to find recent articles about Eurobonds.
- Reuters: A multinational news agency. It provides financial markets data and news where you can search for the latest news about Eurobonds.
- Bloomberg: A major global provider of 24-hour financial news and information, including real-time and historic price data, financials data, trading news and analyst coverage, as well as general news and sports. Its services cover market data, price data, financials data, trading news, analyst coverage, and more about Eurobonds.
