Eurobond (external bond)

A eurobond is an international bond that is denominated in a currency not native to the country where it is issued. Also called external bond; "external bonds which, strictly, are neither eurobonds nor foreign bonds would also include: foreign currency denominated domestic bonds…"[1] It can be categorised according to the currency in which it is issued. London is one of the centers of the eurobond market, with Luxembourg being the primary listing center for these instruments.[2] Eurobonds may be traded throughout the world, with Singapore and Tokyo being particular markets.

A eurobond is not to be confused with a Eurobond. When capitalised, the word described bonds issued by the European Union or the European Central Bank.

Terminology

Eurobonds are named after the currency they are denominated in. For example, Euroyen and Eurodollar bonds are denominated in Japanese yen and American dollars, respectively. Eurobonds were originally in bearer bond form, payable to the bearer and were also free of withholding tax. The bank paid the holder of the coupon the interest payment due. Usually, no official records were kept. The word "eurobond" was originally created by Julius Strauss.

History

The first eurobonds were issued in 1963 by Italian motorway network Autostrade,[3] which issued 60,000 bearer bonds at a value of US$250 each for a fifteen-year loan of US$15m, paying an annual coupon of 5.5%. The issue was arranged by London bankers S. G. Warburg.[4][5] and listed on the Luxembourg Stock Exchange. Allen & Overy, one of London's Magic Circle of law firms, were the lawyers on the transaction. Their conception was largely a reaction against the imposition of the Interest Equalization Tax in the United States.[6] The goal of the tax was to reduce the US balance-of-payment deficit by reducing American demand for foreign securities. Americans could bypass the costly tax and Europeans could keep open access to US capital.

Electronic Form

Like other commonly traded securities, virtually all Eurobonds now trade in dematerialized electronic book-entry form, rather than physical form.[7] The bonds are held and traded within one of the clearing systems (Euroclear and Clearstream being the most common).[8] Coupons are paid electronically via the clearing systems to the holder of the eurobond (or their nominee account).

References
  1. p. 15 Eurobonds; Michael Bowe. ISBN 1-55623-179-2
  2. "World Federation of Exchanges Monthly Statistics, extracted from 'Number of Bonds Listed' report". Archived from the original on 17 August 2014.
  3. "History of the Autostrade Group". Archived from the original on 15 June 2009. Retrieved 17 June 2009.
  4. "$15M. Autostrade Loan, Consortium Headed By Warburgs". The Times. London. 19 June 1963.
  5. Ferguson, Niall, High Financier: the Lives and Times of Siegmund Warburg, 220 (2010)
  6. "Subterranean capitalist blues". The Economist. 26 October 2013.
  7. https://www.investopedia.com/terms/b/bearer_bond.asp
  8. Corporate Bonds and Structured Financial Products, Moorad Choudhry, 213.

Further reading
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