CHAPTER 12 - INTERNATIONAL BOND MARKET
Who cares? 1) Financial officer of a MNC issuing bonds in the intl. bond market and 2) Intl. investors,
fund managers investing in intl. fixed income securities, seeking highest return, diversified bond
WORLD BOND MARKETS
See Exhibit 12.1, p. 294. $51 trillion face value worth of bonds outstanding worldwide in 2003 vs.
about only $28T worth of equity in developed countries (p. 314). Almost 2X as much debt as equity.
are approx. 78% of the world bond market ($40.3T/$51.4T),
about 22% ($11T/$51T).
: U.S. companies issuing bonds in U.S. in dollars, Japanese
firms issuing bonds in Japan in Yen, German companies issuing debt in Europe in euros, etc.
: MNCs issuing debt in a foreign bond market, either in their own currency or a
GM issuing bonds in the UK, denominated in either BPs or USDs.
84% of the intl. bond market is USD or euros.
INTL BONDS - $11T (22% of Market)
1. Foreign Bonds (20%)
- Bond issued by a domestic company in a
, denominated in
German MNC (Daimler) issues bonds in U.S. in dollars. Toyota
issues bonds in U.S. in dollars. GM issues bonds in U.K. in pounds or in Germany in euros. U.S.
railroads issued foreign bonds in U.K. (payable in BPs) in the 1800s to finance railroad construction.
2. Eurobonds (80%) -
Bond issued by a domestic company in a foreign market, in a currency other
than the currency of the foreign country.
: U.S. MNC (GM) issues bonds in Europe, payable
in U.S. dollars, i.e. a dollar Eurobond or Eurodollar bonds. (Yen Eurobond/Euroyen bonds, SF
Eurobonds/EuroSF bonds, etc.)
: GM simultaneously issues bonds in USD ($), in both U.S. (domestic) and Europe
The three markets (Domestic, Foreign and Eurobond) compete with each other. See Exhibit 12.2, page
294. In 2003, 71% of intl. bonds were fixed rate, 26% variable rate, 3% Equity-related (convertible to
equity, or with equity options: warrants).
Bearer bonds vs. Registered Bonds
Bearer bond -
Most Eurobonds are unregistered, issuing firm or underwriter does not keep records of
ownership. Possession is evidence of ownership, like cash.
BUS 466/566: International Finance – CH 12
Professor Mark J. Perry