Eurobonds: Definition, Issuance Process, and Market Impact

Eurobonds, which are issued in a currency other than the producing country’s, are very useful for businesses that need money and want to be able to choose which currency to use. They are appealing because they let you choose where to issue them based on rules, interest rates, and market depth.

Eurobonds are appealing to buyers because their face values are usually low, they are more affordable, and they are very liquid, which makes buying and selling them easy.

The term “Eurobond” might mislead—it doesn’t imply issuance within Europe or in euros. Companies can issue these bonds, denominated in currencies like the U.S. dollar, outside their home country, exemplifying their global nature.

In 1963, Autostrade, which was in charge of Italy’s state railways, put out the first Eurobond, which was worth $15 million. Bankers in London created it, released it at Amsterdam Airport Schiphol, and paid for it in Luxembourg. It was a safe way for European investors to invest in dollars.

Diverse entities, from multinational corporations to sovereign governments, utilize Eurobonds. These bonds can be colossal, often exceeding a billion dollars in a single issuance, with varying maturities usually ranging between five and 30 years, predominantly fewer than a decade.

Eurobonds particularly entice issuers from countries lacking substantial capital markets while providing investors with diversification opportunities.

Eurobonds are a type of financial instrument that is issued by a corporation, government, or supranational entity.

The process involves several steps, including preparation, selection of underwriters, due diligence, documentation, marketing, pricing, book building, allocation, and closing.

The issuer decides the amount, currency denomination, and maturity date of the bonds. Underwriters manage the process, ensuring all necessary documentation is in order.

The offering memorandum provides detailed information about the bonds. The underwriters then market the bonds to potential investors, compiling orders into a book and setting the final pricing. The proceeds are then issued to investors.

Initially, Eurobonds were physically delivered; presently, electronic issuance dominates. Services like the Depository Trust Company (DTC) in the U.S. and the Certificateless Registry for Electronic Share Transfer (CREST) in the UK facilitate electronic issuance.

These bonds typically assume bearer form, bypassing registration and ownership records. Possession of the physical bond signifies ownership, easing regulatory, and tax considerations.

The global bond market exceeds $100 trillion, with Eurobonds potentially constituting around 30% of this figure due to their unregistered bearer form. Emerging markets increasingly contribute to Eurobond issuance, seeking more developed borrowing avenues.

Eurobonds can be denominated in currencies other than the issuer’s home currency, such as the U.S. dollar, Japanese yen, or British pound.

No, the term “Eurobond” refers to bonds issued outside the currency’s home country, not specifically within Europe.