|
Different Types Of Bonds
|
|
Investment Management
|
|
Zohaib Hassan Shah
|
|
MB-09-084
|
|
|
|
|
|
|
|
|
According
to the Securities Act of 1933, these bonds must first be registered with the Securities
and Exchange Commission (SEC) before they can be sold. Yankee bonds are often
issued in tranches and each offering can be as large as $1 billion. Yankee bond
is publicly issued in the U.S. by foreign banks and corporations. Foreign
issuers tend to prefer issuing Yankee bonds when U.S. interest rates are low
because this means lower interest payments for the foreign issuer.
Yankee
bond may take up to 14 weeks (or 3.5 months) to be offered to the public due to
the stringent regulations and standards. Part of the process involves having
debt-rating agencies evaluate the credit worthiness of the Yankee bond's
underlying issuer.
Example:
For
example, let's assume Company XYZ is headquartered in Spain. If Company XYZ
issues bonds in the United States that are denominated in U.S. dollars, the
bonds are Yankee bonds.
Like
other bonds, Yankee bonds obligate the borrower to pay a certain interest rate
and principal amount according to the terms of the indenture. Investors like
Yankee bonds because they offer geographic and currency diversification as well
as some tax advantages. Investors also get dollar income streams, which they
might use to pay other dollar-denominated obligations.
Sukuk
bond is the Arabic name for financial certificates, but commonly refers to the
Islamic equivalent of bonds. Since fixed income, interest bearing bonds are not
permissible in Islam, Sukuk securities are structured to comply with the
Islamic law and its investment principles, which prohibits the charging, or paying
of interest. The issuer of a sukuk sells an investor group the certificate, who
then rents it back to the issuer for a predetermined rental fee. The issuer
also makes a contractual promise to buy back the bonds at a future date at par
value.
Sukuk
securities tend to be bought and held and, as a result, little of the
securities enter the secondary market (allowing them to be traded).
Furthermore, only public Sukuk are able to enter this market, as they are
listed on stock exchanges. "Sukuk bonds" are designed to get around
religious laws banning the payment of interest for money lending. Sukuk
financing superficially resembles the similarly religious concept of interest-free
loans.
The word Eurobond was originally created by”
Julius Strauss.”
A
Eurobond is an international bond that is denominated in a currency not native
to the country where it is issued. Eurobonds are named after the currency they
are denominated in. For example, Euro-yen and Eurodollar bonds are denominated
in Japanese yen and American dollars respectively. A Eurobond is normally a
bearer bond, payable to the bearer. It is also free of withholding tax. The
bank will pay the holder of the coupon the interest payment due. Usually, no
official records are kept. It can be categorized according to the currency in
which it is issued. London is one of the centers of the Eurobond market, but
Eurobonds may be traded throughout the world - for example in Singapore or
Tokyo.
The
majority of Eurobonds are now owned in 'electronic' rather than physical form.
The bonds are held and traded within the clearing systems. Coupons are paid
electronically via the clearing systems to the holder of the Eurobond (or their
nominee account).
We
can define foreign bond as “A bond that is issued in a domestic market by a
foreign entity, in the domestic market's currency.” Foreign bonds are regulated
by the domestic market authorities and are usually given nicknames that refer
to the domestic market in which they are being offered. A foreign bond is most
often issued by a foreign firm to raise capital in a domestic market that would
be most interested in purchasing the firm's debt. For foreign firms doing a
large amount of business in the domestic market, issuing foreign bonds is a
common practice.
Types of foreign bonds:
Types
of foreign bonds include:
Bulldog bonds -
Matilda bonds
-
Samurai bonds
During
the Cold War, Soviet-block nations often had to pay for imports with US
dollars—or receive US dollars for their exports. They were loath to leave their
dollar deposits with banks in the United States due to the risk of those
deposits being frozen or seized. Instead, they started placing the deposits
with European banks. Because they were US dollars held in Europe, the funds
came to be known as Eurodollars, and the deposits were Eurodollar deposits. The
banks started to lend those deposited dollars out. This was the beginning of
the Eurodollar market.
We
can define it as:
“A
short-term certificate of deposit with a fixed interest rate issued in U.S.
dollars outside the jurisdiction of the Federal Reserve. For example, one may
purchase a CD in U.S. dollars and deposit it in a bank in the UK. Eurodollar
deposits help persons and businesses hedge against short-term fluctuations in
U.S. dollar exchange rates.”
The
Eurodollar market has become global, so its name is a bit of a misnomer. A bank
in Japan or Singapore may accept dollar deposits, but these are still called
Eurodollar deposits. The market also includes other currencies, so there are
Eurosterling, Euroyen, Euroswiss, etc.
