Definition of 'Eurobond'

A bond issued in a currency other than the currency of the country or market in which it is issued.

Investopedia explains 'Eurobond'

Usually, a eurobond is issued by an international syndicate and categorized according to the currency in which it is denominated. A eurodollar bond that is denominated in U.S. dollars and issued in Japan by an Australian company would be an example of a eurobond. The Australian company in this example could issue the eurodollar bond in any country other than the U.S. Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country in which to offer their bond according to the country's regulatory constraints. They may also denominate their eurobond in their preferred currency. Eurobonds are attractive to investors as they have small par values and high liquidity.

The Eurobond market is made up of investors, banks, borrowers, and trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special kind of bond issued by European governments and companies, but often denominated in non-European currencies such as dollars and yen. They are also issued by international bodies such as the World Bank. The creation of the unified European currency, the euro, has stimulated strong interest in euro-denominated bonds as well; however, some observers warn that new European Union tax harmonization policies may lessen the bonds' appeal. Eurobonds are unique and complex instruments of relatively recent origin. They debuted in 1963, but didn't gain international significance until the early 1980s. Since then, they have become a large and active component of international finance. Similar to foreign bonds, but with important differences, Eurobonds became popular with issuers and investors because they could offer certain tax shelters and anonymity to their buyers. They could also offer borrowers favorable interest rates and international exchange rates.

Types of Bonds
International Bond Issues - Eurobonds, Global Bonds, Foreign Bonds

Eurobonds
The name Eurobonds can be misleading because from the word, youd think either Eurobonds were about the European bond markets, or about the European currency, Euros. Eurobonds are actually bonds that are denominated in a currency other than that of the country in which they are issued. They are usually issued in more than one country of issue and traded across international financial centres.

Supranational organisations and corporations are major issuers in the Eurobond market. Supranational organisations (such as the World Bank or the European Bank for Reconstruction and Development) use such bond issues for financing the development of emerging markets or to support developing countries. Corporations, including banks and multinational entities issue Eurobonds for many purposes including financing for capital and other projects. Eurobonds are not regulated by the country of the currency in which they are denominated. Eurobonds are so-called bearer bonds, they are not registered anywhere centrally, so whomever holds or bears the bond is considered the owner. Their bearer status also enables Eurobonds to be held anonymously.

The Eurobond market is largely a wholesale, institutional market with bonds held by large institutions. There are few individual investors in the Eurobond market, in general fewer in the UK than on the continent. Since many investors hold Eurobonds for a long time, these bond issues may not be frequently traded which will make it more difficult for an investor who wants to buy or sell a Eurobond to assess the market price.

Types of Eurobonds

Conventional or Straight Eurobonds have a fixed coupon (usually paid on an annual basis) and maturity date when all the principal is repaid.

Floating rate bond notes (FRN) are usually short to medium term bond issues, with a coupon interest rate that floats, i.e. goes up or down in relation to a benchmark rate plus some additional spread of basis points (each basis point being one hundredth of one percent). The reference benchmark rate is usually LIBOR (London interbank offered rate) or EURIBOR (Euro interbank offered rate). The spread added to that reference rate is a function of the credit quality of the issuer.

Zero-coupon bonds do not have interest payments. The investor in this type of Eurobond may be looking for some kind of tax advantage.

Convertible bonds can be exchanged for another instrument, usually an ordinary share or shares (fixed ahead of time with a predetermined price) of the issuing organisation. The bondholder decides whether to convert the bond. In convertible bonds, the coupon payable is usually lower than it otherwise would be. Because convertible bonds can be viewed more as equity shares than bonds, the credit and interest rate risks for investors are higher than with conventional bonds.

High-yield bonds are also part of the Eurobond markets, a class of bonds (rather than a type of bond) which individual investors may encounter. High-yield bonds are those that are rated to be below investment grade by credit rating agencies (i.e. issuer has a credit rating below BBB).