What is a Eurobond?

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson we will look at what Eurobonds are and how they differ from regular bonds. We will also go over a few of the advantages they offer to issuers and investors.

Eurobonds

Dr. Smith is an investor from Texas who wants to diversify his portfolio by investing in the bonds of European companies. To his annoyance, many of these bonds are priced in British pounds or Euros. Fortunately, there is a solution to his problem called Eurobonds. Let's review with the good doctor what is unique about these bonds, and how they can help further his investment goals.

Definition

A Eurobond is a bond that is denominated in a currency other than that of the country where it was issued. What this means for Dr. Smith is that he can buy a bond issued by a British company, except instead of working with British pounds, the bond will be bought, tracked, and sold in US dollars. The term is not exclusive to bonds originating from Europe. Any time the bond is denominated in a currency different than the origin country, it is a Eurobond; for example, even if a Japanese bond is denominated in US dollars instead of yen, it is a Eurobond.

Eurobonds, like other types of bonds, can be issued by governments or corporations. Most have a maturity date of less than 10 years, although maturity ranges from five to 30 years. When the bonds are originally issued, investors often have to buy a minimum of $100,000.

Purchase and Delivery

Originally, Eurobonds were paper documents delivered to the bondholders. Today, the bonds are bought, tracked, and sold electronically. The bonds are held within a clearing system and interest payments are periodically delivered into the bondholders' bank accounts; however, the bonds are typically not registered with governments and are issued as bearer bonds. The nature of these bonds adds a number of advantages to issuers and investors.

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