The Eurodollar background
After the Second World War large amounts of US dollars were held outside the United States, by European companies, by banks and by governments that preferred not to keep their dollars in America. Banks in London began to accept these dollar deposits and lend them on. This offshore dollar pool became known as the Eurodollar market.
1963: the first modern Eurobond
The issue usually described as the first modern Eurobond was arranged in London in July 1963 for Autostrade, the Italian motorway company, guaranteed by the Italian state holding company IRI. It raised US$15 million, paid a coupon of 5.5% and was listed in Luxembourg. The deal is closely associated with the London merchant bank S. G. Warburg.
The same month the United States proposed the Interest Equalization Tax, which made it more expensive for US investors to buy foreign securities. Foreign borrowers who had used New York now looked to raise dollars elsewhere, and London became the centre of the new market.
Building the infrastructure
- 1968: Euroclear was created in Brussels to settle Eurobond trades by book entry instead of physically moving paper certificates.
- 1970: Cedel (now Clearstream Banking, Luxembourg) was founded by a group of banks as a second settlement system.
- 1969: dealers formed an association that eventually became the International Capital Market Association (ICMA), which sets market practice rules.
Growth and change
The removal of US capital controls in 1974 did not slow the market; it kept growing because of its flexibility. The 1980s brought swaps, floating-rate notes and large sovereign borrowers. The launch of the euro in 1999 created a single deep currency market in Europe, and the 2000s and 2010s saw emerging-market governments and companies become regular issuers. More recently green, social and sustainability-linked bonds have become a major segment.
Today the international bond market is measured in tens of trillions of US dollars outstanding, and Eurobonds are issued by borrowers from almost every country in the world.