Eurobond

A eurobond is an international bond which is sold in countries with a currency other than the currency which denominates the bond.

Example: A bond denominated by the Swiss franc is offered to investors in the United States by a Swiss borrower is a eurobond.

It is important not to confuse the term eurobond with Eurobonds – bonds issued by the European Central Bank and denominated by the euro currency used by many European Union member countries.

A eurobond may be denominated by the U.S. dollar (a eurodollar bond) but issued outside of the U.S. It may also be denominated by the Japanese Yen (a euroyen bond) but issued outside of Japan or by the British pound (a eurosterling bond) but issued outside of Great Britain. It may be denominated by any other currency, but issued outside of the country which issues the denominating currency.

The market for eurobonds denominated by the Swiss franc is small in relation to the markets for eurodollar, euroyen and eurosterling bonds. However, the stability of the Swiss franc in relation to other major currencies has made existing franc-denominated eurobonds popular among investors.

The term eurobond, in this case, is derived from the origins of this type of investment vehicle. The first eurobonds were issued in the Netherlands and sold in Luxembourg on behalf of Italian civil engineering firm Autostrade. These bonds, denominated by U.S. dollars, enabled investors to invest in a European company using U.S. dollars, and to earn interest in U.S. dollars. This eliminated the need to exchange U.S. dollars to the weak Italian lira and risk losing money when exchanging interest earned in lira back into U.S. dollars. It also allowed the borrower (Autostrade) to raise money in a strong currency (the U.S. dollar).

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