What is Continuously Offered Longer-Term Securities

Continuously Offered Longer-Term Securities are a type of bond that has been sold by the World Bank since 1989 in order to finance its operations. The bonds range in length from three to 30 years and can be fixed rate, variable rate or zero coupon.

BREAKING DOWN Continuously Offered Longer-Term Securities

The World Bank issued the first Continuously Offered Longer-Term Securities (COLTS), the first globally traded and settled bond in the financial markets, in September 1989. The new issue satisfied the World Bank's desire for investor diversification, but also for cheaper money. The World Bank provides financial assistance to developing countries in the form of low-interest loans, no-interest credit and grants. This money helps fund education, health, agriculture and other development initiatives.

After two years of preparations, the World Bank announced its intentions to issue the first COLTS in June 1989, after two years of preparation and a campaign to convince a group of 14 banks to give up a number of established bonds and embark on what one banker at the time described as “a massive fee-cutting exercise” under Deutsche Bank’s leadership. COLTS gave the World Bank a continuous US presence; in one year it did $1 billion in more than 1,000 tickets, which provided the basis to begin eliminating the pricing disparity between US and European markets.

Underwriting the Continuously Offered Longer-Term Securities

One of the main goals of the underwriting process for the new COLTS bonds was to ensure a reliable valuation, with no reallowances to investors or “soft dollar” arrangements, to ensure the equal treatment of investors. The confirmation of primary market orders at the issue price enhanced this equality.

Under the new COLTS bonds, Euromarket banks gave up lead manager fees and praecipuum, but were compensated by being able to buy bonds at the same price as the lead. Together with the opportunity afforded them to put their New York desks to better use, Eurobankers ended up being relatively comfortable with the new scheme. US firms, on the other hand, may have had to concede a cut of up to 50 percent in fees, and, as such, did not warm up to the new COLTS bonds as quickly.

Together, the improvements enabled the World Bank to reduce its US dollar borrowing costs by at least 5 to 10 basis points, compared with traditional Eurodollar bond issues, and by at least 10 to 15 basis points, compared with earlier issues launched exclusively in the United States domestic bond market.