What Is a Global Bond?
A global bond is a type of bond that can be traded in a domestic or European market. It is a bond issued and traded outside the country where the currency of the bond is denominated. This type of bond is issued by a non-European company but sells in a European country or any other foreign market. For example, a U.S. corporation can issue a bond in Europe. These bonds are sold in various maturities and credit qualities.
Global Bonds are sometimes referred to as a Eurobond.
Global Bonds Explained
When multinational corporations and sovereign entities decide to raise large capital, they may choose to issue global bonds. Global bonds are international bonds that are offered simultaneously in various capital markets including Europe, Asia, and America. These bonds may have a fixed or floating rate with maturities ranging from one to 30 years.
Some global bonds are denominated in the currency of the company's country base, such as the yen for Japanese companies and the euro for a German corporation. Other global bonds are denominated in the currency of the country where the bond is issued. Returning to the earlier example the U.S. corporation could sell a bond on a Japanese marketplace and denominate it in yen.
Due to the fluctuation of exchange rates, investors typically invest in foreign fixed income that brings in modest returns and fluctuates slightly. Global bonds are seen as a way to diversify a portfolio that is limited to a specific denomination or one particular country's bond, such as a U.S. bond because this bond will have less correlation to the foreign fixed income bond.
Global Bonds vs. Eurobonds
Global bonds are sometimes also called Eurobonds but they have additional features. A Eurobond is an international bond that is issued and traded in countries other than the country in which the bond’s currency or value is denominated. These bonds are issued in a currency that is not the domestic currency of the issuer.
A French company that issues bonds in Japan denominated in U.S. dollars has issued a Eurobond, more specifically, a Eurodollar bond. Other types of Eurobonds are the Euroyen and Euroswiss bonds.
A global bond is similar to the Eurobond but can also be traded and issued simultaneously in the country whose currency is used to value the bond. Drawing from our Eurobond example above, an example of a global bond will be one in which the French company issues bonds denominated in the U.S. dollar but offers the bonds in both Japan and U.S. markets.
Categorizing Global Bonds
Global bonds are grouped into developed country bonds and emerging market bonds. Bonds issued by corporations and governments from developed countries are issued with differing maturities and credit qualities. Some of these bonds are U.S. dollar-denominated. However, most are denominated in the currencies of their home countries.
Emerging market bonds are typically issued by a sovereign government, not corporations. These bonds are dollar-denominated and offer high-interest rates due to the perceived higher level of risk of a bond investment issued by an economically unstable country.