Definition
A foreign bond is issued by a non-domestic borrower in the domestic currency of the market where it’s issued. The issuer is foreign, but the bond is subject to local regulations, local market practices, and is cleared/settled locally.
Examples
| Name | Issuer Origin | Issued In | Currency |
|---|---|---|---|
| Yankee Bond | Foreign issuer | U.S. | USD |
| Samurai Bond | Foreign issuer | Japan | JPY |
| Bulldog Bond | Foreign issuer | UK | GBP |
| Maple Bond | Foreign issuer | Canada | CAD |
| Matador Bond | Foreign issuer | Spain | EUR |
Definition
A Eurobond is issued in a currency different from the home currency of the country or market where it’s issued. They are typically issued offshore (outside the jurisdiction of any single country) and traded internationally.
Examples
- Eurodollar Bond: Issued in USD outside the U.S. (e.g., by a German company in London).
- Euroyen Bond: Issued in JPY outside Japan.
- Euroeuro Bond: Issued in EUR outside the Eurozone.
Definition
Global bonds are issued simultaneously in multiple markets and listed on several exchanges. They combine features of Eurobonds and domestic bonds to reach the broadest investor base.
Example
The World Bank issues a Global USD Bond simultaneously in the U.S. (Yankee market), Europe (Eurobond market), and Asia. Investors across continents subscribe at the same time.
Definition
Issued by governments or state-owned entities in emerging economies to raise foreign capital. They can be denominated in hard currency (e.g., USD, EUR) or local currency.
Risk & Reward Profile
- Higher yields due to sovereign risk.
- Often rated below investment grade.
- Sensitive to political stability, foreign reserves, and fiscal balance.
- Risks include currency, default, liquidity, and political/legal risk.
Example
A Brazil 10-year USD bond yields 8.2% vs. a U.S. Treasury 10-year at 4.6%. The ~3.6% difference is the EM risk premium.
Definition
Brady Bonds were created in the late 1980s/1990s to restructure defaulted sovereign debt in Latin America. They converted bank loans into tradable bonds, often collateralized by U.S. Treasuries.
Relevance
Modern sovereign restructuring (like in Ukraine or Argentina) uses similar “Brady-style” exchange offers.
Definition
Sukuk are Sharia-compliant bond-like instruments. They do not pay interest (riba) but represent ownership in an asset, lease, or project, distributing profits instead of interest.
Key Features
- Asset-backed, not debt-based.
- Compliant with Islamic law.
- Growing market in GCC, Malaysia, and Southeast Asia.
| Type | Issued by | Currency | Market |
|---|---|---|---|
| Panda Bond | Foreign issuer in China | CNY | China onshore |
| Dim Sum Bond | Foreign issuer in Hong Kong | Offshore CNY | Hong Kong |
| Masala Bond | Indian issuer offshore | INR | London, Singapore |
| Samurai Bond | Foreign issuer in Japan | JPY | Tokyo |
| Formosa Bond | Foreign issuer in Taiwan | TWD | Taipei |
- Currency Risk: FX fluctuations affect returns if the bond currency differs from the investor's home currency.
- Sovereign Risk: The risk that a government defaults or imposes capital controls.
- Political Risk: Policy shifts, expropriation, or instability can affect repayment.
- Liquidity Risk: Some EM bonds trade thinly, leading to higher bid-ask spreads.
- Legal/Settlement Risk: Legal enforcement risk across different jurisdictions.
- Rating Downgrade Risk: EM ratings are more volatile and can sharply reduce prices.
Q: What’s the difference between a Yankee bond and a Eurodollar bond?
A: A Yankee bond is issued by a foreign borrower in the U.S. market in USD, subject to U.S. SEC rules. A Eurodollar bond is issued outside the U.S. in USD, often without SEC registration.
Q: Why do EM sovereign bonds offer higher yields?
A: They carry higher credit, political, and currency risk, so they compensate investors with higher returns (an EM risk premium).
Q: How does a Sukuk differ from a conventional bond?
A: A Sukuk represents ownership in an asset or project and pays profit/lease income instead of interest, to comply with Islamic law.