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Different type of bonds
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| Words: 292 | Submitted: 08-Aug-2011
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DescriptionDifferientation between different kind of bonds in the market
There is no united global bond market. Instead, the global bond market is divided into three groups:
Domestic bonds are issued locally by a domestic borrower and are usually denominated in the local currency. Domestic bond make up the bulk of a national bond market. Different issuers belong to different market segments: government, semi government, corporate
Foreign bonds are issued on a local market by a foreign borrower and are usually denominated in local currency. Foreign bond issues and trading are under the supervision of local market authorities.
Eg: A bond issued by a Swedish corporation, denominated in US dollar, and sold in the US to US investors.
A international bond or Eurobond are underwritten by a multinational syndicate of banks and issued and traded mainly in countries other than the one in whose currency the bond is dominated. These bond are not traded on a specific national bond market.
Eg: A bond issued by a US corporation, denominated in US dollars but sold to investors in Europe and Japan ( not investors in the US)
Eurobonds make up over 80 percent of the international bond market. The 2 major reasons for this stem from the fact that US dollar is the currency most frequently sought in international bond financing.
Another difference is the composition of the underwriting syndicate. Foreign bonds are underwritten in the country of currency denomination, and are therefore subject to the regulation of that country. It has disclosure requirements and is imposed interest tax which make it less attractive to foreign borrower. Eurobond, however, are underwritten by an international syndicate and is not subject to the rules and regulations of any country. It has limited regulation and recordkeeping, and no tax withholding requirements, which further lower interest rate required by investors.
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