Eurobond. MarketCheese

A eurobond is a bond that is issued in a currency that differs from the currency that is used within the country issuer. Usually, such bonds are regarded as a debt instrument. Eurobonds may be categorized by the currency, for example, samurai, eurodollar or eurosterling bonds. The second name for eurobonds is external bonds, since they aren’t issued in internal currency.

One of the main advantages of eurobonds is that issuing bonds in foreign currency provides for companies the opportunity to increase their capital.

Characteristics of Eurobonds

The name Eurobond doesn’t mean that these bonds are issued in Europe. It refers to the fact that the country where they were issued has a different currency from the one in which bonds were issued. For instance, a eurosterling may be issued by an American company.

Eurobonds have several beneficial traits that attract people all over the world:

Flexibility. Eurobonds allow its issuance in any country an issuer likes, Thus, the issuer may select the country with preferable interest rates, market depth, etc.
Low nominal value. Or, in other words, par nominal. It allows you to start investing even with a small amount of money.
High liquidity. The procedure of purchase and selling is exceedingly simple.

Origin of Eurobonds

The Italian motorway network Autostrade became the first one who issued eurobonds. It happened in 1963. It was a sixty thousand eurodollar bonds with a total loan of $15 million for fifteen years. They were designed by London bankers and listed on the Luxembourg Stock Exchange. Thus, investors from Europe got the opportunity to have dollar investments. The first eurobonds had physical form and their owners received the paper bonds.

There is a wide range of eurobond issuers of eurobonds, they may offer government bonds and company’s bonds. The price of one bond may reach billions of dollars. Although a maturity may vary between 1 and 40 years, most eurobonds have a maturity less than 10 years. Generally, eurobonds are popular among issuers, whose country doesn’t have a capital market big enough to provide diversification.

Form of Eurobonds

Nowadays Eurobonds are issued in bearer form with the help of electronic means. Since these bonds aren’t registered, there is no way to prove the ownership. Thus, such bonds may be payable to every person that has them at this particular moment. Eurobonds are issued in such a form in order to eschew regulations and taxes.

Advantages of Eurobonds

Eurobonds have the following advantages:

Flexibility. Eurobonds may be issued in every country and currency the issuer likes. The choice is totally up to the issuer.
Little bureaucracy. When issuing bonds there isn't much bureaucracy since it’s regulated by market practice.
Low nominal value. Thus, the entry threshold is really low.
No tax. Since issuer companies aren’t obligated to share the information about interest payments with authorized bodies, there is no automatic withholding of taxes. Also, the information becomes known only in case a bond owner reports his or her income from it.
Liquidity. Easy purchase and selling is also a great advantage.

Disadvantages of Eurobonds

Eurobonds have the following disadvantages:

High risks. Since the home country isn’t able to regulate eurobonds, the purchase of such bonds involves high risks.
No automatic withholdings. The other side of the no tax advantage is that in case an investor decides to disclose his or her income information the investor must estimate the number of taxes on his or her own.
Сurrency fluctuations. Currency fluctuations must be taken into account when purchasing eurobonds. It involves even higher risks.