equirus-logo

Eurobond

What is Eurobond?

A Eurobond is a type of bond that is issued in a currency different from the home currency of the country or market where it is issued. Despite the name, Eurobonds have nothing to do with the euro or Europe specifically—they can be issued in any currency and in any country.

For example, a bond issued in Japan and denominated in U.S. dollars is a Eurobond.

Key Characteristics

  • Currency: Denominated in a foreign currency (e.g., a dollar-denominated bond issued outside the U.S.).
  • Issuance Location: Issued in countries outside the jurisdiction of the currency in which it’s denominated.
  • Issuer: Can be governments, corporations, or international organizations.
  • Investor Base: Targeted at international investors.
  • Format: Typically issued in bearer form, meaning ownership is determined by physical possession of the bond.
  • Liquidity: Generally highly liquid and traded in over-the-counter (OTC) markets.

Why Issue a Eurobond?

  1. Access to international capital: Issuers can reach a broader base of investors.
  2. Favorable interest rates: Some markets may offer lower borrowing costs.
  3. Currency matching: Useful for multinational companies that earn revenues in a foreign currency.
  4. Less regulation: Often issued in markets with lighter regulatory requirements than domestic markets.

Types of Eurobonds

  1. Eurodollar Bonds: Denominated in U.S. dollars but issued outside the U.S.
  2. Euroyen Bonds: Denominated in Japanese yen but issued outside Japan.
  3. Euro-euro Bonds: Denominated in euros but issued outside the Eurozone.

Example

If an Indian company issues a bond in London that is denominated in U.S. dollars, that bond is considered a Eurobond. The name reflects the cross-border and foreign-currency nature of the bond, not the continent.

**Risks Involved

  • Currency Risk: If investors or issuers deal in different currencies, exchange rate fluctuations can affect returns or liabilities.
  • Political and Regulatory Risk: Varies by the jurisdiction of issuance.
  • Interest Rate Risk: Changes in global interest rates can impact bond prices and yields.