6.2 International bond markets and issuance

International bond markets are vital for global finance, connecting issuers and investors across borders. These markets consist of primary and secondary segments, involving various participants like governments, corporations, and financial intermediaries.

Different types of international bonds cater to diverse needs. Eurobonds, foreign bonds, and global bonds each serve unique purposes, allowing issuers to tap into multiple markets and currencies while navigating regulatory landscapes.

International Bond Markets Structure and Types

Structure of international bond markets

Top images from around the web for Structure of international bond markets

• 

  Perfect Competition – Introduction to Microeconomics View original

  Is this image relevant?

• 

  Bond Markets - Free of Charge Creative Commons Suspension file image View original

  Is this image relevant?

• 

  Buying and Selling at Securities Exchanges | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Perfect Competition – Introduction to Microeconomics View original

  Is this image relevant?

• 

  Bond Markets - Free of Charge Creative Commons Suspension file image View original

  Is this image relevant?

1 of 3

Top images from around the web for Structure of international bond markets

• 

  Perfect Competition – Introduction to Microeconomics View original

  Is this image relevant?

• 

  Bond Markets - Free of Charge Creative Commons Suspension file image View original

  Is this image relevant?

• 

  Buying and Selling at Securities Exchanges | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Perfect Competition – Introduction to Microeconomics View original

  Is this image relevant?

• 

  Bond Markets - Free of Charge Creative Commons Suspension file image View original

  Is this image relevant?

1 of 3

• Primary market facilitates initial bond issuance directly from issuers to investors raising capital for governments and corporations
• Secondary market enables trading of previously issued bonds through OTC transactions and electronic platforms enhancing liquidity
• Market participants include issuers (governments, corporations), investors (institutional, retail), and intermediaries (investment banks, brokers) facilitating transactions
• Markets perform capital raising, offer investment opportunities, and enable price discovery fostering efficient allocation of resources

Types of international bonds

• Eurobonds issued outside domestic market of currency denomination avoid national regulations often in multiple tranches (USD Eurobond issued in London)
• Foreign bonds issued in domestic market by foreign entities subject to local regulations (Yankee bonds in US, Samurai bonds in Japan)
• Global bonds issued simultaneously in multiple markets by large multinationals or sovereigns registered with multiple regulatory bodies (World Bank global bond issue)

Bond issuance in international markets

• Issuance process involves:
  1. Pre-launch preparation
  2. Marketing and book-building
  3. Pricing and allocation
  4. Settlement and listing
• Underwriters structure offerings, manage syndicates, conduct due diligence, price and distribute bonds
• Credit rating agencies assess issuer creditworthiness, assign ratings, and monitor rated entities (Moody's, S&P)
• Legal considerations include securities law compliance, drafting offering documents, meeting disclosure requirements, and addressing cross-border regulatory issues

Factors affecting international bond yields

• Credit risk reflects issuer's financial health and repayment ability influencing yields through ratings and default probability
• Currency risk stems from exchange rate fluctuations impacting foreign investor returns necessitating hedging strategies
• Market liquidity affects bond prices through bid-ask spreads and trading volume
• Additional factors include interest rates, macroeconomic conditions, political risks, and supply-demand dynamics
• Yield curve analysis examines term structure of interest rates and spreads between bond types
• Bond pricing fundamentals based on present value of future cash flows: $P = \sum_{t=1}^{n} \frac{C}{(1+r)^t} + \frac{F}{(1+r)^n}$
  • P = price, C = coupon payment, r = yield to maturity, F = face value, n = number of periods