final one global bond market

8/10/2019 Final One Global Bond Market

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Global Bond Market

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Presented by:Abdul Rafey 1213-SE/Msc-E&F/F11

Nafees Wahab 1216-SE/Msc-E&F/F11

Haseeb Qureshi 1217-SE/Msc-E&F/F11


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Introduction of International

bondThe international bond market - a market for foreigncurrency bonds issued and traded across nationalboundaries has played an important role in the

internationalization of capital markets which hastaken place since 1980

. During the 1980, the international sectors share oftotal nominal out standings of the main bond

markets advanced from 4% to 11%.The internationalbond market has been particularly successful inattracting private sector borrowing away fromdomestic markets.


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History of International bonds

The issuance of international bonds has provided a

route for cross-border capital flows for more than a

century and a half. From the 1820s onwards, foreign

issuers of bonds Most commonly governments and railway Companies

were often in evidence in the London financial

markets. Throughout the second of the nineteenth

century and until the outbreak of the First World WarLondon and Paris were the principal financial centers in

which large foreign bond markets existed.


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The inter war period had, in any case, witnessed theemergence of New York as the most important foreign bondmarket and this position was consolidated by the US financial

markets in the first decade and a half after 1945. According toone estimate, some $14 billion of Capital was raised in thedollar foreign bond (or Yankee) market in the years 1946-63.'Yankee Bond'

A bond denominated in U.S. dollars that is publicly issued in

the U.S. by foreign banks and corporations. According to theSecurities Act of 1933, these bonds must first be registeredwith the Securities and Exchange Commission (SEC) beforethey can be sold. Yankee bonds are often issued in tranchesand each offering can be as large as $1 billion.

Foreign issuers tend to prefer issuing Yankee bonds when U.S.interest rates are low because this means lower interestpayments for the foreign issuer.


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Us gold reserves declined along with the continuing deficits led the USgovt to restrict the massive ouflows of capital in the form of Yankeebond

That given the rise to the euro bond market which by 1990 accounted

for more than three quarters of all outstanding international bonds Its market was seen in early 1960 at the beginning primarily a market in

dollar bonds

1 Accumulation of offshore dollar balances during thelate1950and early 1960, associated with Regulation Q.

fear of dollar accounts held in us might frozen USmultinational companies done the foreign direct investmentcaused us current account deficits. The holders of thesedollars became major investors in foreign dollar bonds.Though trading took place in New york but both borrowersand investors were often EUROPEAN.In that outfolw americanput the interest Equalization Tax 1% which the effectiveannual cost to foreigners of borrowing in the united states .This discourage the European borrowers use of Yankee bondmarket and issuance was diverted to euro bond


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AEurobondis an international bondthat is denominated ina currencynot native to the country where it is issued. Alsocalled external bond;

By the end of the 1960s a thriving Deutsche Mark sector ofthe Euro-bond market had also been createdSO Germaninvestors were permitted to acquire foreign Deutsche Markbonds, since such capital outflows eased the upwardpressure on nthe currency. The acquisition of domesticGerman bonds b foreigners , by a similar line of reasoning,was to be discouraged. Accordingly, in 1964 a withholdingtax was introduced on domestic German bonds and thismeasure created a strong incentive for non Germaninvestors to acquire foreign rather than domestic DeutscheMark denominated bonds.

Non dollar sectors were Deutsche Mark and Dutch Guilder.During second half of the decade the yen, sterling, Frenchfranc and Canadian dollar sectors of the euro bond marketall developed.
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Foreign Deutsche Mark bonds had been issued as early as1958;as the participation of non german investors in thismarket rose, non german securities houses became

increasingly active in the underwriting and distribution ofthese bonds. Primary and secondary market practices offoreign Deutsche Mark BOND in effect evolved into a Euro-bond market.

Deutsche mark bonds Foreign Deutsche Mark bonds had

been issued as early as 1958;as the participation of non-German investors in this market rose, non-Germansecurities houses became increasingly active in theunderwriting and distribution of these bond.yuhjn in 1964the former Wes Germans opened the first important

nondollar currency sector by imposing a 25% withholdingtax on domestic investment in deutcshe mark bonds by nonresidents. This success of deutsche mark bond broughtother new currency sectors into the market


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This success of deutsche mark bond brought

other new currency sectors into the market.

With the advent of floating exchange rates theimportance of currency considerations in asset

and liability management was underlined and

during the second half of the decade the yensterling French franc and Canadian dollar

sectors of the Eurobond market all developed.


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Global bond market

The global bond markets categorize as

Domestic or National bond market

International bond markets

The domestic bond are issued in eachcountry by governmental, sub-sovereign, agency

or building society bodies and corporations.International bond market comprises theEurobond market and the foreign bond market.


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Euro Bond and Foreign

The Eurobond market comprises bondsdenominated in a currency other than that of thecountry in which they are issued

Foreign market comprises bonds that are issuedby foreign borrowers, i.e. those entities which donot reside in the country in which the bondsare issued. foreign market comprises bonds that

are issued by foreign borrowers, i.e. thoseentities which do not reside in the country inwhich the bonds are issued.


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Domestic Bonds

Government BondIssued by central governments

In order to borrow money to cover the gap between

the amount they receive in taxes and the amount they

spend; to re-fund existing debt; to raise capital.

Government bonds are usually considered the highest

quality bonds in the market because they are backed

by central governmentsMost individual investors focus on buying and selling

government bonds.


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Currency Country Type of Bond

Pound sterling UK Gilts

Euro France OATs

Euro Germany Bunds

Euro Italy BTPs

Euro Spain Letras del Tesoro

US dollar US US Treasuries


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International BOND

International bonds can be government or

corporate bonds. The key concept is that the

bonds are issued either in a currency other

than that of the country in which they areissued or by an issuer that doesnt reside in

the country in which they are issued.


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Euro Bonds

A Eurobond is a bond that is issued by an internationalborrower and sold to investors in countries withcurrencies other than the currency in which the bond isdenominated. An example of a Eurobond is a dollar-

denominated bond issued by a U.S. company and soldto Japanese investors. A Eurobond is typically issued ina single currency (frequently dollars) in manycountries. By selling Eurobonds, many multinationalcompanies finance their global operations especially in

the countries in which they are do business. Eurobondsare also a source of intermediate and long-termfinancing of sovereign governments and supranationals(e.g., IMF, WB, etc).


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'Foreign Bond'

A bond that is issued in a domestic market by a foreignentity, in the domestic market's currency. A foreign bond ismost often issued by a foreign firm to raise capital in adomestic market that would be most interested inpurchasing the firm's debt. For foreign firms doing a large

amount of business in the domestic market, issuing foreignbonds is a common practice. Issuing bonds denominated inforeign currencies also gives issuers the ability to accessinvestment capital available in foreign markets. Theproceeds from the issuance of these bonds can be used by

companies to break into foreign markets, or can beconverted into the issuing company's local currency to beused on existing operations


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Some foreign issuer bonds are called by theirnicknames, such as the "samurai bond." Thesecan be issued by foreign issuers looking to

diversify their investor base away from domesticmarkets. These bond issues are generallygoverned by the law of the market of issuance,e.g., a samurai bond, issued by an investor based

in Europe, will be governed by Japanese law. Notall of the following bonds are restricted forpurchase by investors in the market of issuance.


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Types of Foreign BOND

Eurodollar bond,a U.S. dollar-denominated bondissued by a non-U.S. entity outside the U.S

Baklava bond, a bond denominated in Turkish Lira andissued by a domestic or foreign entity in the Turkish

market Yankee bond, a US dollar-denominated bond issued by

a non-US entity in the US market.

Samurai bond, a Japanese yen-denominated bondissued by a non-Japanese entity in the Japanese market

Bulldog bond, a pound sterling-denominated bondissued in London by a foreign institution orgovernment.


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Formosa bond, a non-New Taiwan Dollar-

denominated bond issued by a non-Taiwan

entity in the Taiwan market Panda bond, a Chinese renminbi-

denominated bond issued by a non-China

entity in the People's Republic of Chinamarket

Dim sum bond, a Chinese renminbi-

denominated bond issued by a Chinese entityin Hong Kong. Enables foreign investors

forbidden


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Currency and Bonds

Dual-currency bonds which principal payments are inone currency and coupon payments are in anothercurrency. This type of bond is used for foreign bonds,

Issues in a foreign country and makes couponpayments in that countrys currency, but principalpayments are made in the currency of the issuerscountry of residence.

From the point of view of an investor in the bond

market of the country in which s/he lives, a bondissued in another currency would be a foreign currencydenominated bond.


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Foreign currency linked bonds

Bonds linked to changes in foreign currency.

Unlike foreign currency denominated bonds in

which case all the payments are made in that

currency, for foreign currency linked bonds,the amount is linked to a foreign currency

exchange rate. This type of bond is used in

countries with unstable or weak currencies.


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Global bonds are bonds offered in multiple

markets, so they can be both in the foreign

market and Eurobond marketthey can be

offered in the country of the currency in whichthe bond is denominated as well as countries

with currencies different to that of the

denomination


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Why International Bonds Issued?

The flow of capital across national boundaries.

The desire of agent to vary the terms, such asthe currency of denomination on which they

borrow and invest. These two factors exhort an influence on

domestic bond markets most of which now

have significant foreign participation they alsoencourage borrowers to utilize bond marketsoutside their country of residence


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final one global bond market

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