Bulldog Bond

What is Bulldog Bond?

A bulldog bond is a type of foreign bond issued by non-British corporations seeking to raise capital in pound-sterling (GBP) from British investors.

Understanding Bulldog Bond

A company may choose to enter a foreign market if it believes that it would get attractive interest rates in this market or if it has need for the foreign currency. When a company decides to tap into a foreign market, it can do so by issuing foreign bonds, which are bonds denominated in the currency of the intended market. Simply put, a foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital. Foreign bonds are mainly used to provide issuers with access to another capital market outside of their own to raise funds.

A bulldog bond is a type of foreign bond issued by non-British corporations seeking to raise capital in pound-sterling from British investors. For example, a Canadian company looking to access investment capital in the U.K. bond market may opt to issue a bulldog bond. If the related expenses (debt) are also in British pounds, and the revenue can offset them, then the exchange rate risk is decreased.

These pound denominated bonds are referred to as bulldog bonds given that the British bulldog is a national icon of England. According to the Bank for International Settlements, GBP is ranked fourth globally in both the most traded currency and reserve currency categories after the U.S. Dollar (USD), Euro (EUR), and the Japanese Yen (JPY).

Bulldog Bond Characteristics

• The bulldog bond is underwritten by a single bank or a syndicate of domestic banks and is denominated in British pounds.
• A bulldog bond is issued when the interest rates in the U.K. are low relative to the foreign corporation's domestic interest rates. Issuing a bulldog bond lowers the issuer’s interest expense or cost of borrowing.
• U.S. investors seeking to diversify their portfolios geographically can purchase this bond, but by doing so they take on foreign exchange risk, that is, the risk of an adverse change in value of the sterling in relation to the dollar. However, a favorable movement in the exchange could bring about financial gains to the investor.
• A bulldog bond is similar to the yankee bond, denominated in USD, in that a non-American company can sell these bonds in the United Sates in order to raise capital in U.S. Dollars.
• Other foreign bonds include kangaroo bonds, maple bonds, matador bonds, samurai bonds, and rembrandt bonds.