International Fixed Income Markets Quiz

International Fixed Income Markets for Sovereign Borrowers

• The classification of international fixed income markets depends on the domicile of the issuer, nature of underwriting syndicate, domicile of primary buyers, and currency of denomination.
• The broad categories of international fixed income markets for sovereign borrowers are domestic, Euro, foreign, and global.
• Domestic bonds are issued, underwritten, and traded in the currency and regulations of a country's domestic bond market, with the borrower located in that country.
• Euro (offshore) bonds are underwritten by an international syndicate and traded in many markets, with the currency depending on the issuer.
• Foreign bonds are issued in and under regulations in a domestic market, but the issuer is from a foreign country and intended for investors in that market.
• The major reasons for issuing foreign bonds are currency status, investor base, hedging, and liquidity, with the goal of finding the cheapest source of funds.
• U.S.-pay international bonds include Eurodollar and Yankee bonds, with Eurodollar bonds not registered with the SEC and in bearer form, while Yankee bonds are registered with the SEC and issued and traded in the U.S.
• The bond-equivalent yield of a Eurodollar fixed-rate bond is computed using a formula, and the yield to maturity on an annual-pay basis is greater than the yield to maturity on a bond-equivalent basis.
• Foreign-pay international bonds are anything that is not issued in U.S. dollars and can be issued in a domestic, foreign, or Euro (offshore) market.
• The Eurozone issues many government bonds in Euros to increase liquidity and demand.
• Foreign-pay bonds have currency risk for U.S. dollar investors, which can be easily hedged, and certain foreign-pay bonds can deliver extra yield relative to USD bonds.
• Sovereign bonds for non-U.S. central governments can be issued in the three ways described and are generally broken into categories for analysis.