Eurobonds: Benefits and Risks
What is a Eurobond? Explain the reason for both issuers and investors wishing to use such financial instruments.
What is a Eurobond? Explain the reasons for both issuers and investors wishing to use such financial instruments.
This paper will discuss the definition of Eurobonds, and the benefits and risks involved in dealing with them. Milos Pesic, an expert in the international bond markets, describes the Eurobond as a bond which is issued as well as traded in a different country form the one where its currency is denominated in. They are payable to the bearer and are generally exempt from tax. The term Eurobond would initially influence readers into believing that it is a strictly European concept, however Eurobonds are traded worldwide. They are named after the currency they are denominated in, for example a bond denominated in dollars would be named Eurodollar. Autostrade, an Italian motorway firm, was the first to use this concept in 1963.
There are numerous benefits to buying and holding Eurobonds. Henry Stephen (2007), a Canadian investment consultant, points out that the key benefit is diversification, a point he refers to as “putting your eggs in different baskets”. Holding Eurobonds in a portfolio will greatly dilute the amount of risk involved in holding bonds and/or shares. Despite the various economic and political that affects parts of the globe at any given time, a well diversified portfolio can outperform a portfolio concentrated in a single country or a single type of bond. Furthermore, when an investor purchases Eurobonds it maximises the foreign content investment which allows the investor to increase foreign exposure and provides an opportunity for yield enhancement.
The Eurobond market is indeed an extremely liquid one, which makes Eurobonds very attractive to investors due to the ease at which they can be bought and sold compared to other financial instruments such
What is a Eurobond? Explain the reasons for both issuers and investors wishing to use such financial instruments.
This paper will discuss the definition of Eurobonds, and the benefits and risks involved in dealing with them. Milos Pesic, an expert in the international bond markets, describes the Eurobond as a bond which is issued as well as traded in a different country form the one where its currency is denominated in. They are payable to the bearer and are generally exempt from tax. The term Eurobond would initially influence readers into believing that it is a strictly European concept, however Eurobonds are traded worldwide. They are named after the currency they are denominated in, for example a bond denominated in dollars would be named Eurodollar. Autostrade, an Italian motorway firm, was the first to use this concept in 1963.
There are numerous benefits to buying and holding Eurobonds. Henry Stephen (2007), a Canadian investment consultant, points out that the key benefit is diversification, a point he refers to as “putting your eggs in different baskets”. Holding Eurobonds in a portfolio will greatly dilute the amount of risk involved in holding bonds and/or shares. Despite the various economic and political that affects parts of the globe at any given time, a well diversified portfolio can outperform a portfolio concentrated in a single country or a single type of bond. Furthermore, when an investor purchases Eurobonds it maximises the foreign content investment which allows the investor to increase foreign exposure and provides an opportunity for yield enhancement.
The Eurobond market is indeed an extremely liquid one, which makes Eurobonds very attractive to investors due to the ease at which they can be bought and sold compared to other financial instruments such
References: Altius Directory, 2007. Eurobonds. [Online] Available at: [Accessed 1 November 2012]. BBC, 2011. Why is Tesco struggling in the US?. [Online] Available at: [Accessed 1 November 2012]. Bloomberg, 2011. Tesco sells its first Euro bonds since ’09 amid EU crisis talks. [Online] Available at: [Accessed 1 November 2012]. E Financial News, 2012. Private equity on alert amid eurobond tax clampdown. [Online] Available at: [Accessed 1 November 2012]. Henry Stephens, 2010. Eurobonds. [Online] Available at: [Accessed 1 November 2012]. Reference for Business, 1998. Eurobond Market. [Online] Available at: [Accessed 1 November 2012]. European Parliament, 2011. Eurobonds – Concepts and Implications. [Online] Available at: [Accessed 1 November 2012].