What Is a Global Bond?
A global bond, also known as an international bond, is a type of bond issued and traded outside the country whose currency is used to denominate the bond.
Key Takeaways
- A global bond, also known as an international bond, is a bond issued and traded outside the country whose currency is used to denominate the bond.
- Global bonds may come with either fixed or floating interest rates, with terms spanning from one to 30 years.
- These bonds are segmented into developed-country bonds and emerging market bonds.
Grasping the Concept of Global Bonds
When multinational corporations or sovereign entities aim to raise significant funds, they opt for issuing global bonds. These international bonds are marketed simultaneously across multiple regions like Europe, Asia, and America. They may come with fixed or floating rates and have maturity periods ranging from one to 30 years.
Some global bonds are denominated in the currency of the issuer’s home country, such as yen for a Japanese company or euros for a German corporation. However, some global bonds are issued in the currency of the market where the bond is offered. For example, a U.S. company could issue a bond in Japan denominated in yen.
Due to fluctuations in exchange rates, investors usually focus on foreign fixed income investments that bring modest returns with slight variations. Global bonds act as a portfolio diversification tool, reducing reliance on bonds from a particular country, like U.S. bonds, further spreading risk.
Global bonds are divided into two categories: developed-country bonds and emerging market bonds. Developed-country bonds are issued by established corporations and governments with varying maturities and credit qualities. While many of these bonds are denominated in local currencies, some use the U.S. dollar.
Emerging market bonds are often issued by sovereign governments rather than corporations. Typically, they are dollar-denominated and offer high-interest rates to compensate for the higher perceived risk associated with bonds from developing countries.
Global Bond vs. Eurobond
Global bonds are sometimes referred to as Eurobonds, but there are distinctions. A Eurobond is an international bond issued and traded outside the currency’s country of denomination. For example, a French company issuing bonds in Japan denominated in U.S. dollars is issuing a Eurobond, more precisely a Eurodollar bond. Other variations include Euroyen and Euroswiss bonds.
A global bond, on the other hand, has an added feature: it can also be issued and traded simultaneously in the country whose currency is used to value the bond. By extending the previous example, a global bond would be a scenario where a French company issues bonds denominated in U.S. dollars in both Japan and the U.S. markets.
The utilization of global bonds offers a rich area of investment opportunities while ensuring geographical diversification and potentially stable returns, making them a valuable tool for savvy investors.
Related Terms: International Bonds, Floating Rate Bonds, Emerging Market Bonds, Sovereign Bonds.
