What is a 'Matador Bond'

A matador bond is a bond issued on a Spanish stock exchange by a foreign entity.

BREAKING DOWN 'Matador Bond'

A matador bond describes any foreign bond issued in Spain. Before Spain adopted the euro as its currency, issuers denominated matador bonds in pesetas.

A foreign bond is a debt obligation issued in any domestic market by an entity domiciled in another country. Foreign bonds appeal to investors because their higher level of risk typically yields better returns than domestic bonds and because the bonds offer a chance to diversify their international holdings while dealing in local currency.

Matador bondssaw a boom between 1987 and 1999. They have historically been predominately corporate issues, and Spain followed a systematic approach when accepting new foreign issuers. Spain initially only allowed AAA-rated supranationals to issue matador bonds, then a few years later allowed other sub-AAA multinationals access to Spain's debt markets. Eventually, the country allowed non-investment grade bond issuances as well.

From 1999 through 2002, Spain transitioned to the euro, making matador bonds more or less indistinguishable from other foreign bonds denominated in euros and issued in other countries within the eurozone.

Foreign Bonds Similar to Matador Bonds

Similar foreign bonds exist in other markets. For example, the bulldog bond denominated in pounds sterling, kangaroo or Matilda bonds denominated in Australian dollars, Maple bonds denominated in Canadian dollars, and Samurai bonds denominated in Japanese yen.

Eurobonds Compared to European-Denominated Foreign Bonds

The adoption of the euro introduced a certain amount of confusion in terms due to the existence of a eurobond in markets before the arrival of the euro. A Eurobond describes any bond denominated in a currency not used in the market in which it gets issued. In other words, a Eurobond describes the opposite situation of a standard foreign bond. Depending on their currency of issue, a group of such bonds generally goes by a compound name with the prefix euro- followed by the currency of issue, for example eurodollar or euroyen bonds.

Because of this linguistic quirk, foreign bonds denominated in euros, such as those a foreign firm might issue in present-day Spain, do not qualify as eurobonds. A euro-denominated bond issue qualifies as a eurobond only if issued in a country that does not use the euro. A hypothetical bond issued in the United States but denominated in euros not only would qualify as a eurobond, but would belong to the subset of eurobonds known as the euroeuro.

RELATED TERMS
  1. Global Bond

    A global bond is a type of bond that can be traded in a domestic ...
  2. Eurobond

    A eurobond is a bond issued in a currency other than the currency ...
  3. Samurai Bond

    A samurai bond is a yen-denominated bond issued in Tokyo by a ...
  4. Bulldog Bond

    Bulldog bond is a type of bond purchased by buyers interested ...
  5. Kangaroo Bond

    A kangaroo bond is a type of foreign bond that is issued in the ...
  6. Bond Fund

    A bond fund is a fund invested primarily in bonds and other debt ...
Related Articles
  1. Investing

    How Currency Risk Affects Foreign Bonds

    Foreign bond investors take advantage of higher interest rates diversifying their holdings. Learn about the increased risk from currency instability.
  2. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  3. Managing Wealth

    The Ins And Outs Of Corporate Eurobonds

    Corporate eurobonds simplify expansion for MNCs, though there are a few more hoops to jump through.
  4. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  5. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  6. Investing

    Basics Of Federal Bond Issues

    Treasuries are considered the safest investments, but they should still be analyzed when issued.
  7. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation.
  8. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  9. Investing

    6 Ways That Investors Use Bonds

    Learn how the stodgy stereotype of bonds can overshadow the basic and advanced uses of what these investments can do for your portfolio.
  10. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
RELATED FAQS
  1. What determines bond prices on the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market and why bond prices and yields ... Read Answer >>
Trading Center