Fixed Income Investments - International Bonds

In general, a country has two bond markets: An Internal Market and an External Bond Market.

The internal market is the mechanism for trading securities within the country in which the issuers are based. This includes the country's domestic and foreign markets.

There are several types of international bonds traded on the External Market:

  • Foreign Bonds - Bonds by issuers who do not reside in the country where they are issued and traded. An example of a foreign would be a bond that is issued by a non-U.S. entity but then trades in the U.S. market. Such bonds can be issued in any currency and can have colorful nicknames such as "Yankee Bonds", which are foreign bonds issued in the U.S., or "Bulldog Bonds", which are sterling-denominated bonds traded in the U.K. foreign bond mark. One last type of a foreign bond is a Supranational. These bonds are 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.
  • Eurobonds - Bonds are bonds issued in a different currency denomination than that of the country in which the bond is issued. Eurobonds are considered the external market for a country, or its international bond market. They are classified by their currency denomination. For example, Eurodollars are denominated in USD while a Euroyen bond would be denominated in Japanese Yen. All Eurobonds have four features:
  1. Underwritten by an international syndicate
  2. When issued, offered simultaneously to investors in a number of countries
  3. Issued outside the jurisdiction of any single country
  4. They are in unregistered form.
  • Global Bonds - A bond that is issued and traded in the foreign bond market of one or more countries as well as in the Eurobond market
  • Sovereign Bonds - Bonds issued by a country's central government. Sovereign bonds tend to be the largest sector of a bond market in any country. They can be issued in their home country, the Eurobond market or the foreign sector of another country. They are typically denominated in the home country's currency, however, they are not required to be. They also have two different ratings:
  1. Local Currency Debt Rating
  2. Foreign Currency Debt Rating

Why two different ratings? The defaults of the bonds tend to differ based on the currency denomination. In general, there are greater defaults on the foreign currency denominated debt. The reason for this is that a government can raise taxes and can control its own financial system. When dealing with a foreign currency, this element of control is lost because the foreign currencies are purchased in the open market. Therefore, if the local currency has depreciated in the markets as compared to the foreign currency, it will be that much harder for an issuer to pay off his obligation.

Government Bonds
Related Articles
  1. Financial Advisors

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
  2. Financial Advisors

    Putting Your CFA Level I on Your Resume

    Learn techniques for emphasizing your CFA Level I status in the Skills and Certifications or Professional Development section of your resume.
  3. Professionals

    Investment Analyst: Career Path and Qualifications

    Learn how to prepare for a career as an investment analyst, and read more about how many professionals in the field progress during their careers.
  4. Professionals

    CAIA Vs. CFA: How Are They Different?

    Find out how the CAIA and CFA designations differ, including which professionals should seek either title based on their career ambitions.
  5. Professionals

    Equity Investments: CFA Level II Tutorial

    Chapter 1: Equity Valuation: Its Applications and Processes Chapter 2: Return Concepts for Equity Valuation Chapter 3: Industry Analysis With Porter's 5 Forces
  6. Professionals

    What To Expect On The CFA Level III Exam

    The Chartered Financial Analyst Level III exam, which is only offered in June, is the last in the series of three tests that CFA candidates must pass.
  7. Professionals

    What To Expect On The CFA Level I Exam

    Becoming a chartered financial analyst requires the passing of three grueling exams covering an array of topics.
  8. Options & Futures

    The Alphabet Soup of Financial Certifications

    We decode the meaning of the many letters that can follow the names of financial professionals.
  9. Professionals

    How to Ace the CFA Level I Exam

    Prepare to ace the CFA Level 1 exam by studying systematically.
  10. Personal Finance

    How To Choose A Financial Advisor

    Many advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. CFA Institute

    Formerly known as the Association for Investment Management and ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  4. Security Analyst

    A financial professional who studies various industries and companies, ...
  1. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  2. How do I become a Chartered Financial Analyst (CFA)?

    According to the CFA Institute, a person who holds a CFA charter is not a chartered financial analyst. The CFA Institute ... Read Full Answer >>
  3. What types of positions might a Chartered Financial Analyst (CFA) hold?

    The types of positions that a Chartered Financial Analyst (CFA) is likely to hold include any position that deals with large ... Read Full Answer >>
  4. Who benefits the most from prepaid expenses?

    Prepaid expenses benefit both businesses and individuals. Prepaid expenses are the types of expenses that are bought or paid ... Read Full Answer >>
  5. If I am looking to get an Investment Banking job. What education do employers prefer? ...

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The ... Read Full Answer >>
  6. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ... Read Full Answer >>
Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center