Explain the differences between foreign bonds & Eurobonds. Also describe why Eurobonds make up the lions share of the international bond market.
The two segments of the international bond market are following: foreign bonds & Eurobonds. A foreign bond issue is one offered through a foreign borrower to investors in a national capital market & denominated in that nation’s currency. A Eurobond issue is one denominated in a specific currency, however sold to investors in national capital markets other than the country which issues the denominating currency.
Eurobonds make up over 80 percent of the international bond market. The two main causes for this stem from the fact that the U.S. dollar is the currency most frequently sought in international bond financing. Firstly, Eurodollar bonds can be brought to market more rapidly than Yankee bonds since they are not offered to U.S. investors and therefore do not have to meet the strict SEC registration requirements. Secondly, Typically Eurobonds are bearer bonds which provide anonymity to the owner and therefore allow a means for evading taxes on the interest received. Due to this feature, investors are normally willing to accept a lower yield on Eurodollar bonds in comparison to registered Yankee bonds of comparable terms, where ownership is recorded. For borrowers the lower yield means lower cost of debt service.