International BondMarketChapter Nine
ChapterOutline× The World's Bond Markets: A StatisticalPerspectiveForeign Bonds and EurobondsTypes of InstrumentsCurrency Distribution, Nationality, Type ofIssuerInternational Bond Market Credit RatingsEurobond Market Structure & PracticesInternational Bond Market Indices
Chapter Outline ❖The World’s Bond Markets: A Statistical Perspective ❖Foreign Bonds and Eurobonds ❖Types of Instruments ❖Currency Distribution, Nationality, Type of Issuer ❖International Bond Market Credit Ratings ❖Eurobond Market Structure & Practices ❖International Bond Market Indices
TheWorld'sBond MarketsA statistical perspective: The total market value of the world'sbond markets are about 50% larger thanthe world's equity markets.Most issues are denominated in U.Sdollars, Japanese Yen are second, followedby Deutchmarks in a distant third
The World’s Bond Markets ❖A statistical perspective: ❖The total market value of the world’s bond markets are about 50% larger than the world’s equity markets. ❖Most issues are denominated in U.S. dollars, Japanese Yen are second, followed by Deutchmarks in a distant third
Amounts of Domesticand InternationalBonds OutstandingTotalPercentPercentCurrencyDomesticPercentInternationalU.S. $39.0%7,129.2036.2%38.2%25,064.134,493.6Euroe14,293.322.3%12,387.647.5%26,680.929.5%2.4%8.2%4.1%Pound f1,559.52,145.63,705.1Yen?17.9%693.92.7%13.5%11,521.512,215.45.5%Other11,783.018.3%1,422.513,205.514.6%Total100%100%90.300.464,221.926.078.5(AsofYear-End 2009 in Billionsof USDollars)
Amounts of Domestic and International Bonds Outstanding (As of Year-End 2009 in Billions of U.S. Dollars) Currency Domestic Percent International Percent Total Percent U.S. $ 25,064.1 39.0% 7,129.20 36.2% 34,493.6 38.2% Euro € 14,293.3 22.3% 12,387.6 47.5% 26,680.9 29.5% Pound £ 1,559.5 2.4% 2,145.6 8.2% 3,705.1 4.1% Yen ¥ 11,521.5 17.9% 693.9 2.7% 12,215.4 13.5% Other 11,783.0 18.3% 1,422.5 5.5% 13,205.5 14.6% Total 64,221.9 100% 26,078.5 100% 90,300.4 100%
DomesticandInternationalBondsOutstanding100908070Domestic6050International40Total3020100U.S.dollarEuroPoundYenOtherTotal(AsofYear0End2009inBillionsofU.S.Dollars)
Domestic and International Bonds Outstanding 0 10 20 30 40 50 60 70 80 90 100 U.S. dollar Euro Pound Yen Other Total Domestic International Total Percentage (As of Year0End 2009 in Billions of U.S. Dollars)
Foreign Bonds and EurobondsBearer Bonds and Registered BondsNational Security RegistrationsWithholding TaxesRecent Regulatory ChangesGlobal Bonds
Foreign Bonds and Eurobonds ❖Bearer Bonds and Registered Bonds ❖National Security Registrations ❖Withholding Taxes ❖Recent Regulatory Changes ❖Global Bonds
BearerBondsandRegistered BondsBearer Bonds are bonds with no registeredowner. As such they offer anonymity butthey also offer the same risk of loss ascurrency.Registered Bonds: the owners name isregistered with the issuer.U.S. security laws require Yankee bondssold to U.S. citizens to be registered
Bearer Bonds and Registered Bonds ❖Bearer Bonds are bonds with no registered owner. As such they offer anonymity but they also offer the same risk of loss as currency. ❖Registered Bonds: the owners name is registered with the issuer. ❖U.S. security laws require Yankee bonds sold to U.S. citizens to be registered
NationalSecurity Registrations Yankee bonds must meet the reguirements of theSEC, just like U.S. domestic bonds.Many borrowers find this level of regulationburdensome and prefer to raise U.S. dollars inthe Eurobond market. Eurobonds sold in the primary market in theUnited States may not be sold to U.S. citizens*Of course, a U.S. citizen could buy a Eurobondon the secondary market
National Security Registrations ❖Yankee bonds must meet the requirements of the SEC, just like U.S. domestic bonds. ❖Many borrowers find this level of regulation burdensome and prefer to raise U.S. dollars in the Eurobond market. ❖Eurobonds sold in the primary market in the United States may not be sold to U.S. citizens. ❖Of course, a U.S. citizen could buy a Eurobond on the secondary market
Withholding TaxesPrior to 1984, the United States required a30 percent withholding tax on interestpaid to nonresidents who held U.S.government or U.S. corporate bonds.The repeal of this tax led to a substantialshift in the relative yields on U.Sgovernment and Eurodollar bonds. This lends credence to the notion thatmarket participants react to tax codechanges
Withholding Taxes ❖Prior to 1984, the United States required a 30 percent withholding tax on interest paid to nonresidents who held U.S. government or U.S. corporate bonds. ❖The repeal of this tax led to a substantial shift in the relative yields on U.S. government and Eurodollar bonds. ❖This lends credence to the notion that market participants react to tax code changes
Recent Regulatory ChangesShelf Registration (SEC Rule 415)Allows the issuer to preregister a securitiesissue, and then offer the securities when thefinancing is actually needed.×SECRule144AAllows qualified institutional investors totrade private placements.These issues do not have to meet the strictinformation disclosure requirements ofpublicly traded issues
Recent Regulatory Changes ❖Shelf Registration (SEC Rule 415) ▪ Allows the issuer to preregister a securities issue, and then offer the securities when the financing is actually needed. ❖SEC Rule 144A ▪ Allows qualified institutional investors to trade private placements. ▪ These issues do not have to meet the strict information disclosure requirements of publicly traded issues