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8/10/2019 Final One Global Bond Market
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Global Bond Market
1
Presented by:Abdul Rafey 1213-SE/Msc-E&F/F11
Nafees Wahab 1216-SE/Msc-E&F/F11
Haseeb Qureshi 1217-SE/Msc-E&F/F11
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Introduction of International
bondThe international bond market - a market for foreigncurrency bonds issued and traded across nationalboundaries has played an important role in the
internationalization of capital markets which hastaken place since 1980
. During the 1980, the international sectors share oftotal nominal out standings of the main bond
markets advanced from 4% to 11%.The internationalbond market has been particularly successful inattracting private sector borrowing away fromdomestic markets.
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History of International bonds
The issuance of international bonds has provided a
route for cross-border capital flows for more than a
century and a half. From the 1820s onwards, foreign
issuers of bonds Most commonly governments and railway Companies
were often in evidence in the London financial
markets. Throughout the second of the nineteenth
century and until the outbreak of the First World WarLondon and Paris were the principal financial centers in
which large foreign bond markets existed.
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The inter war period had, in any case, witnessed theemergence of New York as the most important foreign bondmarket and this position was consolidated by the US financial
markets in the first decade and a half after 1945. According toone estimate, some $14 billion of Capital was raised in thedollar foreign bond (or Yankee) market in the years 1946-63.'Yankee Bond'
A bond denominated in U.S. dollars that is publicly issued in
the U.S. by foreign banks and corporations. According to theSecurities Act of 1933, these bonds must first be registeredwith the Securities and Exchange Commission (SEC) beforethey can be sold. Yankee bonds are often issued in tranchesand each offering can be as large as $1 billion.
Foreign issuers tend to prefer issuing Yankee bonds when U.S.interest rates are low because this means lower interestpayments for the foreign issuer.
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Us gold reserves declined along with the continuing deficits led the USgovt to restrict the massive ouflows of capital in the form of Yankeebond
That given the rise to the euro bond market which by 1990 accounted
for more than three quarters of all outstanding international bonds Its market was seen in early 1960 at the beginning primarily a market in
dollar bonds
1 Accumulation of offshore dollar balances during thelate1950and early 1960, associated with Regulation Q.
fear of dollar accounts held in us might frozen USmultinational companies done the foreign direct investmentcaused us current account deficits. The holders of thesedollars became major investors in foreign dollar bonds.Though trading took place in New york but both borrowersand investors were often EUROPEAN.In that outfolw americanput the interest Equalization Tax 1% which the effectiveannual cost to foreigners of borrowing in the united states .This discourage the European borrowers use of Yankee bondmarket and issuance was diverted to euro bond
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AEurobondis an international bondthat is denominated ina currencynot native to the country where it is issued. Alsocalled external bond;
By the end of the 1960s a thriving Deutsche Mark sector ofthe Euro-bond market had also been createdSO Germaninvestors were permitted to acquire foreign Deutsche Markbonds, since such capital outflows eased the upwardpressure on nthe currency. The acquisition of domesticGerman bonds b foreigners , by a similar line of reasoning,was to be discouraged. Accordingly, in 1964 a withholdingtax was introduced on domestic German bonds and thismeasure created a strong incentive for non Germaninvestors to acquire foreign rather than domestic DeutscheMark denominated bonds.
Non dollar sectors were Deutsche Mark and Dutch Guilder.During second half of the decade the yen, sterling, Frenchfranc and Canadian dollar sectors of the euro bond marketall developed.
http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Bond_(finance)8/10/2019 Final One Global Bond Market
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Foreign Deutsche Mark bonds had been issued as early as1958;as the participation of non german investors in thismarket rose, non german securities houses became
increasingly active in the underwriting and distribution ofthese bonds. Primary and secondary market practices offoreign Deutsche Mark BOND in effect evolved into a Euro-bond market.
Deutsche mark bonds Foreign Deutsche Mark bonds had
been issued as early as 1958;as the participation of non-German investors in this market rose, non-Germansecurities houses became increasingly active in theunderwriting and distribution of these bond.yuhjn in 1964the former Wes Germans opened the first important
nondollar currency sector by imposing a 25% withholdingtax on domestic investment in deutcshe mark bonds by nonresidents. This success of deutsche mark bond broughtother new currency sectors into the market
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This success of deutsche mark bond brought
other new currency sectors into the market.
With the advent of floating exchange rates theimportance of currency considerations in asset
and liability management was underlined and
during the second half of the decade the yensterling French franc and Canadian dollar
sectors of the Eurobond market all developed.
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Global bond market
The global bond markets categorize as
Domestic or National bond market
International bond markets
The domestic bond are issued in eachcountry by governmental, sub-sovereign, agency
or building society bodies and corporations.International bond market comprises theEurobond market and the foreign bond market.
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Euro Bond and Foreign
The Eurobond market comprises bondsdenominated in a currency other than that of thecountry in which they are issued
Foreign market comprises bonds that are issuedby foreign borrowers, i.e. those entities which donot reside in the country in which the bondsare issued. foreign market comprises bonds that
are issued by foreign borrowers, i.e. thoseentities which do not reside in the country inwhich the bonds are issued.
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Domestic Bonds
Government BondIssued by central governments
In order to borrow money to cover the gap between
the amount they receive in taxes and the amount they
spend; to re-fund existing debt; to raise capital.
Government bonds are usually considered the highest
quality bonds in the market because they are backed
by central governmentsMost individual investors focus on buying and selling
government bonds.
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Currency Country Type of Bond
Pound sterling UK Gilts
Euro France OATs
Euro Germany Bunds
Euro Italy BTPs
Euro Spain Letras del Tesoro
US dollar US US Treasuries
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International BOND
International bonds can be government or
corporate bonds. The key concept is that the
bonds are issued either in a currency other
than that of the country in which they areissued or by an issuer that doesnt reside in
the country in which they are issued.
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Euro Bonds
A Eurobond is a bond that is issued by an internationalborrower and sold to investors in countries withcurrencies other than the currency in which the bond isdenominated. An example of a Eurobond is a dollar-
denominated bond issued by a U.S. company and soldto Japanese investors. A Eurobond is typically issued ina single currency (frequently dollars) in manycountries. By selling Eurobonds, many multinationalcompanies finance their global operations especially in
the countries in which they are do business. Eurobondsare also a source of intermediate and long-termfinancing of sovereign governments and supranationals(e.g., IMF, WB, etc).
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'Foreign Bond'
A bond that is issued in a domestic market by a foreignentity, in the domestic market's currency. A foreign bond ismost often issued by a foreign firm to raise capital in adomestic market that would be most interested inpurchasing the firm's debt. For foreign firms doing a large
amount of business in the domestic market, issuing foreignbonds is a common practice. Issuing bonds denominated inforeign currencies also gives issuers the ability to accessinvestment capital available in foreign markets. Theproceeds from the issuance of these bonds can be used by
companies to break into foreign markets, or can beconverted into the issuing company's local currency to beused on existing operations
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Some foreign issuer bonds are called by theirnicknames, such as the "samurai bond." Thesecan be issued by foreign issuers looking to
diversify their investor base away from domesticmarkets. These bond issues are generallygoverned by the law of the market of issuance,e.g., a samurai bond, issued by an investor based
in Europe, will be governed by Japanese law. Notall of the following bonds are restricted forpurchase by investors in the market of issuance.
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Types of Foreign BOND
Eurodollar bond,a U.S. dollar-denominated bondissued by a non-U.S. entity outside the U.S
Baklava bond, a bond denominated in Turkish Lira andissued by a domestic or foreign entity in the Turkish
market Yankee bond, a US dollar-denominated bond issued by
a non-US entity in the US market.
Samurai bond, a Japanese yen-denominated bondissued by a non-Japanese entity in the Japanese market
Bulldog bond, a pound sterling-denominated bondissued in London by a foreign institution orgovernment.
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Formosa bond, a non-New Taiwan Dollar-
denominated bond issued by a non-Taiwan
entity in the Taiwan market Panda bond, a Chinese renminbi-
denominated bond issued by a non-China
entity in the People's Republic of Chinamarket
Dim sum bond, a Chinese renminbi-
denominated bond issued by a Chinese entityin Hong Kong. Enables foreign investors
forbidden
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Currency and Bonds
Dual-currency bonds which principal payments are inone currency and coupon payments are in anothercurrency. This type of bond is used for foreign bonds,
Issues in a foreign country and makes couponpayments in that countrys currency, but principalpayments are made in the currency of the issuerscountry of residence.
From the point of view of an investor in the bond
market of the country in which s/he lives, a bondissued in another currency would be a foreign currencydenominated bond.
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Foreign currency linked bonds
Bonds linked to changes in foreign currency.
Unlike foreign currency denominated bonds in
which case all the payments are made in that
currency, for foreign currency linked bonds,the amount is linked to a foreign currency
exchange rate. This type of bond is used in
countries with unstable or weak currencies.
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Global bonds are bonds offered in multiple
markets, so they can be both in the foreign
market and Eurobond marketthey can be
offered in the country of the currency in whichthe bond is denominated as well as countries
with currencies different to that of the
denomination
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Why International Bonds Issued?
The flow of capital across national boundaries.
The desire of agent to vary the terms, such asthe currency of denomination on which they
borrow and invest. These two factors exhort an influence on
domestic bond markets most of which now
have significant foreign participation they alsoencourage borrowers to utilize bond marketsoutside their country of residence
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