What is a 'Yankee Bond'

A Yankee bond is a bond issued by a foreign entity, such as a bank or company, but is issued and traded in the United States and denominated in U.S. dollars. Yankee bonds are governed by the Securities Act of 1933, which requires the bonds to be registered with the Securities and Exchange Commission (SEC) prior to being offered for sale. Yankee bonds are frequently issued in tranches, individual portions of a larger debt offering or structured financing arrangement that have differing risk levels, interest rates and maturities, and offerings may be extremely large, as much as $1 billion.

BREAKING DOWN 'Yankee Bond'

One of the drawbacks of Yankee bonds for issuers is the time involved in offering a bond for sale. Because of strict U.S. regulations for the issuing of such bonds, it can take more than three months for A Yankee bond issue to be approved for sale. The approval process includes an evaluation of the issuer’s credit worthiness by a debt-rating agency such as Moody’s or Standard & Poor’s. Foreign issuers usually favor issuing Yankee bonds when there is a low interest rate environment in the United States, since that means the issuer is able to offer the bond with lower interest payments.

Advantages of Yankee bonds for Issuers and Investors

Yankee bonds can represent a win-win opportunity for both issuers and investors. One of the primary potential advantages for A Yankee bond issuer is the opportunity to obtain financing capital at a lower cost if comparable bond rates in the United States are significantly lower than the current rates in a foreign company’s own country. The size of the U.S. bond market and the fact it is very actively traded by U.S. investors also confers an advantage for the issuer, especially if the bond offering is a large one. Although U.S. regulatory requirements may initially hamper a foreign issuer in regard to obtaining approval to offer bonds, conditions for lending in the United States may still be less stringent overall than those in the issuer’s own country, allowing the issuer greater flexibility in the terms of the offering.

A major advantage for U.S. investors in Yankee bonds is such bonds frequently offer higher yields than the yields available on comparable, or even lower-rated, bond issues from U.S. issuers. Another potential advantage is the fact that Yankee bonds offer investors a means of obtaining international diversification in a portfolio of bond investments. Yankee bonds also offer U.S. investors an advantage over investing in foreign corporation bond issues made in the foreign company’s home country. Since Yankee bonds are denominated in U.S. dollars, the currency risk commonly associated with foreign bond investments is virtually eliminated.

RELATED TERMS
  1. Yankee CD

    A certificate of deposit (CD) that is issued in the United States ...
  2. Yankee Market

    A slang term for the stock market in the United States. Yankee ...
  3. Yankee Certificate Of Deposit

    A certificate of deposit issued by a foreign bank in the United ...
  4. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
  5. Reverse Convertible Bond - RCB

    A bond that can be converted to cash, debt or equity at the discretion ...
  6. Foreign Bond

    A bond that is issued in a domestic market by a foreign entity, ...
Related Articles
  1. Investing

    How Exchange Risk Affects Foreign Bonds

    Investors include foreign bonds in their portfolios to take advantage of higher interest rates or yields, and to diversify their holdings. However, the higher return expected from investing in ...
  2. Investing

    Spice Up Your Portfolio With International Bonds

    Going global can add flavor and diversity to an otherwise bland basket of bonds.
  3. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  4. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  5. 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.
  6. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  7. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
RELATED FAQS
  1. Where can I find information about corporate bond issues?

    Learn information about corporate bond investments, including where investors can access information about new corporate ... Read Answer >>
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
  6. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability of potential investments.
Trading Center