CFA Level 1 - Fixed Income Investments
All Eurobonds have four features:
- Underwritten by an international syndicate
- When issued, offered simultaneously to investors in a number of countries
- Issued outside the jurisdiction of any single country
- They are in unregistered form.
- Global Bonds - A bond that is issued and traded in the foreign bond market of one or more countries as well as in the Eurobond market
- Sovereign Bonds - Bonds issued by a country's central government. Sovereign bonds tend to be the largest sector of a bond market in any country. They can be issued in their home country, the Eurobond market or the foreign sector of another country. They are typically denominated in the home country's currency, however, they are not required to be.
They also have two different ratings: 1.Local Currency Debt Rating2. Foreign Currency Debt Rating
Why two different ratings? The defaults of the bonds tend to differ based on the currency denomination. In general, there are greater defaults on the foreign currency denominated debt. The reason for this is that a government can raise taxes and can control its own financial system. When dealing with a foreign currency, this element of control is lost because the foreign currencies are purchased in the open market. Therefore, if the local currency has depreciated in the markets as compared to the foreign currency, it will be that much harder for an issuer to pay off his obligation.