International Bond Market
International Bond Market OverviewThere is no single international bond market as such. The international bond market is divided into three separate types of bond markets: Domestic Bonds, Foreign Bonds, and Eurobonds.
Domestic BondsThe market for domestic bonds is a part of the international bond market. Domestic bonds are brought out on a local basis and domestic borrowers are responsible for issuing the local bonds. Domestic bonds are normally designated in the local currency.
Foreign BondsThe foreign bond market is that in which bonds are brought out by foreign borrowers. The foreign bonds are normally designated in the local currency. The local market authorities look after the issuing and selling of foreign bonds.
Foreign Bond MarketsThe foreign bonds are traded in the foreign bond markets which constituted a significant portion of the international bond market until a few decades ago. Some defining characteristics of the foreign bond markets are:
- Issuers are normally governments and private sector utilities such as the railway companies
- It was standard practice to underwrite as well as organize underwriting risk
- Issues were pledged by the retail investors and the institutional investors
- The structure of a foreign bond at that time is similar to the present day foreign bonds
- Continental private banks and old merchant houses in London connected the investors and the issuers
Eurobonds differ from the others in that they are not sold in any particular national bond market. Eurobonds are issued by a group of multinational banks. If a Eurobond is designated in any currency, it would be sold outside the country which uses that currency. For example if a Eurobond is denominated in the United States dollar, it would not be sold in the United States.
The Euromarket is the market where Eurobonds are traded apart from the Eurocurrency, Euronotes, Eurocommercial Papers, and Euroequity. The Euromarket is normally an offshore market. The traders of bonds prefer the Eurobond market as it has comparatively lower costs and regulations.