Global Bonds: Definition and How They Work A global bond is a debt security issued and traded outside the country whose currency is used to denominate the bond. Issuers include sovereigns and multinational corporations that tap multiple capital markets simultaneously—typically Europe, Asia, and the Americas—to raise large amounts of capital. How global bonds work
* Issuance and markets: Global bonds are offered across more than one national market at the same time. They may be registered or bearer issues and are commonly marketed to institutional and international investors.
* Currency denomination: A global bond can be denominated in the issuer’s home currency or in a foreign currency. For example, a U.S. company might issue a bond in yen on Japanese markets, or it might issue a U.S.-dollar bond sold in both the U.S. and Japan.
* Interest structure and maturities: Global bonds can carry fixed or floating interest rates and typically have maturities ranging from one to 30 years.
* Pricing and yield: Yields reflect credit quality, prevailing interest rates, and currency expectations in the markets where the bond trades.
Types of global bonds
* Developed-market bonds: Issued by governments and corporations in developed economies. These bonds vary widely in credit quality and currency denomination; many are denominated in the issuer’s home currency.
* Emerging-market bonds: Often issued by sovereign governments and frequently dollar-denominated. These typically offer higher yields to compensate investors for elevated political, economic, and credit risk.
Benefits
* Diversification: Holding global bonds can reduce portfolio concentration risk tied to one country’s interest-rate cycle or economic conditions.
* Access to broader investor pools: Issuers can tap deeper liquidity and attract investors with different currency preferences.
* Potential yield enhancement: Exposure to emerging-market debt or foreign-currency issues can offer higher yields than domestic equivalents.
Risks
* Currency risk: Fluctuations in exchange rates can increase or decrease the bond’s local-currency return if an investor does not hedge currency exposure.
* Credit and sovereign risk: Political instability or fiscal weakness in the issuer’s country can raise default risk, particularly for emerging-market sovereigns.
* Liquidity and market risk: Some international issues may trade less frequently in certain markets, widening bid-ask spreads and making price execution more costly.
* Interest-rate risk: As with all bonds, changes in global interest rates affect bond prices—impacting long-duration issues more heavily.
Global bond vs. Eurobond
* Eurobond: A type of international bond issued and traded outside the issuer’s home country in a currency that is not the issuer’s domestic currency (e.g., a French company issuing U.S.-dollar bonds in Japan). Eurobonds commonly carry labels such as Eurodollar, Euroyen, etc.
* Global bond: Broader term that includes bonds issued and traded across multiple countries and may also be offered in the country whose currency is used to denominate the bond. A global bond can be the same as a Eurobond if it is issued outside the issuer’s home country and denominated in a foreign currency, but a global bond can additionally be sold simultaneously in the currency’s home market.
Example A French corporation issues U.S.-dollar-denominated bonds and sells them in Japan, the U.S., and Europe. If it markets the issue in Japan and Europe but not in the U.S., the issue would be considered a Eurobond (specifically a Eurodollar). If it sells the same dollar-denominated bonds in all three regions including the U.S., it would be considered a global bond. Key points
* Global bonds are international debt securities sold across multiple markets and can be denominated in domestic or foreign currencies.
* They provide diversification and access to wider investor bases but introduce currency and cross-border credit risks.
* Distinction from Eurobonds: Eurobonds are issued outside the issuer’s country and in a non‑home currency; global bonds may also be offered in the currency’s home market.
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