A bond issued outside the currency's home market
A Eurobond is a bond denominated in a currency that is different from the currency of the country or market in which it is issued. A US-dollar bond sold to investors through London, a yen bond placed with European investors or a sterling bond arranged in Luxembourg are all Eurobonds.
The prefix "Euro" is older than the euro currency. It comes from the "Eurodollar" market of the 1950s and 1960s, when US dollars were deposited and lent by banks in Europe, outside the reach of US banking rules. Today a Eurobond can be denominated in euros, US dollars, sterling, yen, Swiss francs or many other currencies; the essential feature is that it is issued internationally rather than in a single domestic market.
Typical features
- International distribution. The bond is sold by a syndicate of banks to investors in several countries at once.
- Fixed or floating coupons. Most Eurobonds pay a fixed coupon once a year; floating-rate notes pay a rate reset against a benchmark.
- Bullet maturity. The face value is normally repaid in one amount on the maturity date, which can be anywhere from about two to thirty years or more.
- Listing for status, trading over the counter. Many Eurobonds are listed on an exchange such as Luxembourg, Dublin or London, but almost all trading happens between dealers rather than on the exchange.
- International settlement. Ownership is recorded and transferred through the international central securities depositories, Euroclear and Clearstream.
- Large denominations. Minimum denominations are often 100,000 or 200,000 units of the currency, which means most Eurobonds are aimed at institutional or professional investors.
Why borrowers use them
The Eurobond market lets a borrower reach a deep, international pool of investors with standardised documentation and fewer local formalities than many domestic markets. A company in Turkey, a government in Africa or a bank in Asia can borrow in US dollars or euros from investors around the world in a single transaction.
Why investors buy them
For investors, Eurobonds offer access to a very wide range of issuers, maturities and currencies, generally with a liquid secondary market for the larger issues. They are a core holding for pension funds, insurers, central banks, asset managers and private banks.