Key Takeaways
- A global bond is issued and traded outside the country where its currency is denominated, offering capital access in multiple markets.
- These bonds can have fixed or floating interest rates and typically mature between one and 30 years.
- Global bonds include developed country bonds and emerging market bonds, catering to differing risk profiles.
- Issuers use global bonds to diversify funding sources, while investors use them to diversify portfolios.
- Global bonds are sometimes called Eurobonds but can also be issued in the currency of the issuing country.
What Is a Global Bond?
A global bond is an international financial instrument that is issued and traded outside the home country of the currency in which it is denominated. Global bonds, also known as Eurobonds, are versatile tools for corporations and governments to raise capital across multiple countries simultaneously, usually in major markets like Europe, Asia, and America.
These bonds differ from traditional domestic bonds because they can be issued in one currency but traded worldwide, allowing for greater diversification and access to larger capital markets.
Understanding Global Bonds
When multinational corporations and sovereign entities decide to raise large capital, they may choose to issue global bonds. Global bonds are international bonds that are offered simultaneously in various capital markets including Europe, Asia, and America. These bonds may have a fixed or floating rate with maturities ranging from one to 30 years.
Some global bonds are denominated in the currency of the company’s country base, such as the yen for Japanese companies and the euro for a German corporation. Other global bonds are denominated in the currency of the country where the bond is issued. Returning to the earlier example the U.S. corporation could sell a bond on a Japanese marketplace and denominate it in yen.
Due to the fluctuation of exchange rates, investors typically invest in foreign fixed income that brings in modest returns and fluctuates slightly. Global bonds are seen as a way to diversify a portfolio that is limited to a specific denomination or one particular country’s bond, such as a U.S. bond because this bond will have less correlation to the foreign fixed income bond.
Global bonds are grouped into developed country bonds and emerging market bonds. Bonds issued by corporations and governments from developed countries are issued with differing maturities and credit qualities. Some of these bonds are U.S. dollar-denominated. However, most are denominated in the currencies of their home countries.
Emerging market bonds are typically issued by a sovereign government, not corporations. These bonds are dollar-denominated and offer high-interest rates due to the perceived higher level of risk of a bond investment issued by an economically unstable country.
Comparing Global Bonds and Eurobonds
Global bonds are sometimes also called Eurobonds but they have additional features. A Eurobond is an international bond that is issued and traded in countries other than the country in which the bond’s currency or value is denominated. These bonds are issued in a currency that is not the domestic currency of the issuer.
A French company that issues bonds in Japan denominated in U.S. dollars has issued a Eurobond, more specifically, a Eurodollar bond. Other types of Eurobonds are the Euroyen and Euroswiss bonds.
A global bond is similar to the Eurobond but can also be traded and issued simultaneously in the country whose currency is used to value the bond. Drawing from our Eurobond example above, an example of a global bond will be one in which the French company issues bonds denominated in the U.S. dollar but offers the bonds in both Japan and U.S. markets.