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Foreign Currency Bonds |
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This article is from the Investing Articles: Bonds series.
The "euromarket" is another major source of foreign currency bond issues. European investors will buy the bonds of well known issuers like Ford, Toyota or General Electric or their international subsidiaries, in many different currencies depending on their currency views. This makes for a constant arbitrage between the foreign and domestic bond markets as investors seek to gain the best possible yield employing currency hedges and swaps. A Canadian institutional investor does not really care if the original Ford Motor Credit Canada bond was issued in U.S. funds if he has swapped both the interest and principal payments into Canadian dollars. The large international swap banks like Citibank make markets buying and selling these swaps, which gives investors tremendous liquidity in these transactions. Dutch and Danish banks often issue in Canadian dollars in the European markets despite eventually requiring funding in their own currencies. They do this to take advantage of demands for Canadian currency issues and to lower their funding costs.
Foreign currency bonds have a vocabulary all their own. Bonds issued in foreign currencies are given the names listed beside the currencies below:
A more recent innovation are bonds that are hybrids in currency terms, with their coupon and principal payments in different currencies. For example, some recent bonds have had their coupon payments in Yen with their principal amounts in Canadian dollars. This satisfies the needs of Japanese institutional investors for yen income while keeping the eventual return of principal in the national currency of the issuer.
Foreign currency bonds have a much different risk and return profile than domestic bonds. Not only is their price affected by movements in a foreign country's interest rate, they also change in value depending on the foreign exchange rates. In Canada, for example, the Canadian dollar has moved upwards to 4% in U.S. dollar terms in very short periods of time. This exchange rate movement would result in price changes of 4% in Canadian dollars which completely overwhelms the coupon income of a bond. Studies have shown that the longer term risk and return characteristics of foreign bonds in domestic currencies are closer to domestic equity returns than domestic fixed income returns.
1. Listing Application: Necessary
2. Listing Criteria
3.Delisting Criteria (other than criteria regarding issuers)
| Outstanding in par
value is: (1)less than 300 million yen, or (2)less than 20% of that of the listing date |
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| Maturity: less than 1 year | ||
| Acceleration of maturity |
4. Delisting Schedule: One year prior to the maturity date in principle
Continue to:
bonds, convertible bonds, federal funds, glossary, foreign currency, municipal, government, savings, tax exempt, yeilds, US Treasure bonds, financial information, investing, investment tools, reference
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