InfoSeries 01: Eurobonds — Introduction
The Kudy Eurobond Fund is our flagship product, and very often we receive questions from clients asking what Eurobonds are and why they are called so.
What are Eurobonds?
Eurobonds are debt instruments that are denominated in a currency other than the home currency of the country or market in which it is issued.
Eurobonds have nothing to do with the Euro and they can be issued in virtually every currency (e.g US Dollars, Japanese Yen, Swiss Francs, etc.) you can think of.
However, Eurobonds issued in US dollars have become the most popular because of the dominance of the US Dollars.
Who can issue Eurobonds?
Issuers of Eurobonds are varied, ranging from corporate (multinational) organisations to sovereign governments and supranational organisations. In some (not so common) instances, sub-national governments all issue bonds in foreign currency.
How far into the future do Eurobonds mature?
The size of a single bond issuance can range in maturities of between 5 and 30 years, although the largest portion has a maturity of fewer than 10 years. At Kudy Financials, we favour bonds that mature in less than 10 years.
What are Eurobond Ratings?
Like every other debt instrument, Eurobonds can be rated by any of the top three rating agencies in the world (Fitch, S&P, and Moodys). The best-rated bonds are rated AAA and bonds in which the issuer has defaulted on its obligations are rated D or (C for Moodys).
Did you know?
A corporate organisation’s or sub-national government’s Eurobond rating is hardly ever higher than that of the country in which it is issuing from.
Credit rating agencies rarely give higher Eurobond ratings to sub-national governments and corporate organisations than that of the country’s sovereign rating because credit rating agencies perceive that the performance of institutions within particular sovereignty is largely dependent on the country’s economic performance. This is called the “sovereign ceiling” policy.
An exception to this rule may arise when a corporate organisation has enough international diversification to subdue the risks experienced by its home country.
