International bond

market
International financial
managment (5) 2022
Dr hab. Joanna Błach
 BONDS

 Debt securities issued by issuer to acquire long-term

funds that have to be repaid in the future with interest

 They may be issued by: the Treasury (T-bonds),

municipal authorities (munis), companies (corporate
bonds)
 They may be placed in: the domestic market and
international markets
 Foreign bonds – sold by the foreign borrower (issuer) but
denominated in the currency of the country in which they are
placed (bulldog bond, samurai bond)
 Eurobonds – placed in a country other than the one in
whose currency the debt is denominated
 Characteristics of bonds
 Face value is the money amount the bond will be worth at maturity;
it is also the reference amount the bond issuer uses when
calculating interest payments
 The coupon rate is the rate of interest the bond issuer will pay on
the face value of the bond, expressed as a percentage
 Coupon dates are the dates on which the bond issuer will make
interest payments. Payments can be made in any interval, but the
standard is semiannual payments
 The maturity date is the date on which the bond will mature and the
bond issuer will pay the bondholder the face value of the bond
 The issue price is the price at which the bond issuer originally sells
the bonds
 Attributes of bonds
 Long-term maturity (5-15 years)
 Fixed or floating interest rate
 Contractual terms and conditions,
including events of default
 For large, well-respected issuers
 Have a credit rating
 Traded in secondary market
 Bond value drivers: interest rate, credit
risk, inflation, duration
Bond issuance
 TYPES OF BONDS
Investor’s Coupon bonds
income Zero coupon bonds (deep discount bond)
Interest rate Fixed rate (straight) bonds
Floating rate bonds
Profit sharing bonds (income bonds)

Collateral Secured bonds (have collateral on specific assets)

Debentures (no backing)
Special Convertible bonds
rights Bonds with priority warrants
Options Call provision (issuer may call bonds for an early
redemption)
Putable options (bondholder may put bonds for an early
redemption)
 Special types of bonds
 Catastrophe bonds (CAT bonds) – allow
the issuer to receive funding from the bond
only if specific conditions, such as an
earthquake or tornado, occur; if a trigger
point is passed, the bonds do not have to
be repaid
 Green bonds - designed specifically to
support specific climate-related or
environmental projects
 CREDIT RATING

 Rating agencies assign a rating to borrowers – they

express the borrower’s ability to repay a debt using a
combination of letters
 A company cannot be assigned a rating higher than a
rating of the country in which it is registered
 The best debtors are issuers with ratings AAA, AA, A
and BBB (investment grade bonds)
 The riskiest bonds are junk bonds
 Rating agencies: Moody’s, Standard & Poor, Fitch
 Investment Grade Corporate Bonds

Treasury Bonds
 International debt finance

Companies may obtain long-term debt in foreign currency:

 to hedge against exchange risk
 to lower interest rates
 to get round any domestic restrictions on currency
exchange
 to obtain large amounts of money
 to be better known on the international market by large
number of investors
 Foreign bonds
 bonds denominated in the currency of the
country of issue when the issuer is a non-
resident
 Bonds issues are governed by the law of
the market of issuance
 the rules are demanding – each country has
different law regulation for the issuers of
bonds
 the most popular are: Samurai bonds,
Yankees and Bulldogs, Rembrandt and
Matador bonds 14
 Foreign bonds nicknames

Name of a bond Currency Issuer

Kangaroo Australian dollar Non-Australian entity in
Australia
Maple Canadian dollar Non-Canadian entity in
Canada
Samurai Japanese yen Non-Japanese entity in
Japan
Yankee US dollar Non-US entity in USA
Bulldog Pound sterling Non-British entity in
London
Eurodollar US dollar Non-US entity outside
the USA
 Eurobond
 a debt instrument denominated in a currency other
than the home currency of the country or market in
which it is issued.
 they help organizations raise capital while having
the flexibility to issue them in another currency
 issuance of Eurobonds is usually handled by an
international syndicate of financial institutions on
behalf of the borrower, one of which may
underwrite the bond, thus guaranteeing the
purchase of the entire issue
 Types of eurobonds
Instrument Frequency of Size of Payoff at maturity
interest payment coupon
payment
Straight fixed-rate Annual Fixed Currency of issue

Floating-rate note Quarterly or Variable Currency of issue

semiannual
Convertible bond Annual Fixed Currency of issue or
conversion to shares
Straight fixed-rate Annual Fixed Currency of issue
with equity plus equity shares
warrants from exercised
warrants
Zero-coupon bond None Zero Currency of issue

Dual-currency Annual Fixed Dual currency

bond
 Primary market of eurobonds
 Issuer=borrower
 Investment banker – lead manager of an
underwriting syndicate
 Underwriters will commit their own capital to
buy issue from the borrower at a discount
from the issue price (2-2,5% underwriting
spread)
 Underwriters create a selling group that
sells the bonds to the public
 Secondary market of
eurobonds
 OTC market, with the main trading in
London, also Zurich, Frankfurt, Amsterdam
 Market makers – ready to buy or sell for
their own account by quoting two way bid
and ask prices
 Brokers – accept buy and sell orders from
market makers and try to find a matching
party for the other side of trade
 Dealers – accpeting the order of retail
clients
BIS statistics for debt securities

 https://stats.bis.org/statx/srs/table/c1?f=pdf
 Eurobonds

 https://www.youtube.com/watch?v=ktw4bq
ZRrq8
Thank you!