Financial Market Debt Primary Market Securities Secondary Market Bonds
Financial Market Debt Primary Market Securities Secondary Market Bonds
Financial Market Debt Primary Market Securities Secondary Market Bonds
Bond
International bonds
The same as normal bonds. But the key concept is that international bonds
are issued either in a currency other than that of the country in which they
are issued or by an issuer that doesnt reside in the country in which they are
issued.
International Bond Market is very big and has an estimated size of more than
60 trillion dollars, and the size of the US bond market is the largest in the
world. The US bond market's outstanding debt is more than $25 trillion.
International bond markets are NOT unified into a single market (like stock
exchange, foreign exchange and Eurocurrency market), they can be done
Over the Counter basis.
Generally, every country has two bond markets: An Internal one and an
External one.
International bond markets are NOT unified into a single market (like
stock exchange, foreign exchange and Eurocurrency market), they can
be done Over the Counter basis.
It can also called the global bond market, which allows investors to
diversify their portfolio, preserve their wealth, and see attractive
returns on their investment.
Bonds can range from extremely low risk to extremely high risk, with
risks at all levels in between.
There are bonds from many developing countries that may offer excellent
returns. This is because international bonds from developing nations may be
somewhat riskier. The four major currencies used to denominate bonds are :
Euro
U.S. dollar
British pound sterling
Japanese yen.
Bond Market
This market trades in a large number of bond types each day, and is
separated into two distinct markets:
Secondary Bond Market is, where the investors who have bought bonds from
the issuing entity go to sell these bonds, and where buyers looking for these
bonds go. The stock market is small compared to the international bond
market, even though the stock market is more well known to the public.
The International Bond Market is an investment market just like the stock
market, but there are some differences in the structure of these two markets.
The usual trading of bonds occurs on the over the counter market, and
not on the exchanges like stocks are. The structure of the international
bond market is all electronic.
There are a few corporate bonds which are the exception, because
these may be traded on the exchanges.
Bonds are normally traded using networks, which are set up to utilize
electronic trading.
- Allows the issuer to pre-register a securities issue, and then offer the
securities when the financing is actually needed.
Institutional investors
Governments
Traders
Individuals
Since there is specificity (quality) of individual bond issues, and a condition
of lack of liquidity in case of many smaller issues, a significantly larger chunk
of outstanding bonds are often held by institutions, such as pension funds,
banks, and mutual funds.
Sovereign Bonds
Foreign Bonds
Global Bonds
Eurobonds
1. Sovereign Bonds
They can be issued in their home country, the Eurobond market or the
foreign sector of another country.
2. Foreign Bonds
Type 1
Type 2
Some popular Foreign Bonds are given below: Can be issued in any currency
and can have colorful nicknames such as:
Yankee Bonds :
Foreign Bonds sold in U.S. (Attract the max num of issuance)
Samurai Bonds:
Foreign Bonds sold in Japan. (Attract the max num of issuance).
Bulldog Bonds:
Foreign Bonds sold in U.K.
Rembrandt Bonds:
Foreign Bonds sold in Netherland.
Matador Bonds:
Foreign Bonds sold in Spain.
Maple Bonds:
Foreign Bonds sold in Canada
Kangaroo Bonds:
Foreign Bonds sold in Australia.
Supranational Bonds
Issued when two or more central governments issue foreign bonds to
promote economic development for the member countries. These
include bonds issued by the International Bank for Reconstruction and
Development, or World Bank, and the International American
Development Bank.
3. Global Bonds
Three U.S. dollar tranches with 5, 10, and 30 year maturities totaling
$9.5 billion,
Two euro tranches with 5 and 10 year maturities totaling 3 billion,
Two British pound sterling tranches with 5 and 30 year maturities
totaling 950 million,
One 5 year Japanese yen tranche of 90 billion.
4. Eurobonds
Differ from the others in that; Bonds are not sold in any national bond
market.
Bearer Bonds
Bonds with no registered owner. They offer anonymity but they also
offer the same risk of loss as currency.
Registered Bonds:
The owners name is registered with the issuer.
Eurobond Practices in the Primary Market
Two major clearing systems, Euro clear and Clear stream International,
handle most Eurobond trades.
Pays a regular fixed interest rate over a fixed period of time to maturity
with the return of principal on the maturity date.
Since most Eurobonds are bearer bonds, coupon dates tend to be
annual rather than semi-annual.
The vast majority of new international bond offerings are straight fixed-
rate issues.
2/Floating-Rate Notes
Common reference rates are 3-month and 6-month U.S. dollar LIBOR
Do not carry a coupon; the return on the bond comes from the fact that
they are sold at a significant discount to the eventual redemption
value.
Zeros are sold at a large discount from face value because there is no
cash flow until maturity.
In the U.S. investors in zeros owe taxes on the imputed income
represented by the increase in present value each year, while in Japan,
the gain is a tax-free capital gain.
4/Equity-Related Bonds
There are two types of Equity-Related Bonds: Convertible bonds and Bonds
with Equity warrants:
Convertible Bonds:
A convertible bond issue allows the investor to exchange the bond for a
predetermined number of equity shares of the issuer.
Investors are usually willing to accept a lower coupon rate of interest than
the comparable straight fixed coupon bond rate because they find the
conversion feature attractive.
These bonds allow the holder to keep his bond but still buy a specified
number of shares in the firm of the issuer at a specified price.
They can be viewed as straight fixed-rate bonds with the addition
of a call option (or warrant) feature.
5/Dual-Currency Bonds:
The evidence suggests that a logical reason for this is that the
Eurobond market is only accessible to firms that have good credit
ratings to begin with.