International Bond Market

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The important role of the bond in the market is raising company's fund by issuing long term debt. International bonds are similar to domestic public corporate bonds about increasing debt except that the borrowers come from over the world so that they can easily trade those bonds within and across global market. Miller and Puthenpurackal (2005) said that, "These distinctive features of global bonds are a result of new global custody, clearing, and settlement procedures that are designed to streamline cross-market trading." (P.850)

Traditionally, the international bond market is divided in two segments: the foreign bonds and the Eurobonds. Eurobond issue is one denominated in a particular currency but sold to investors in national capital markets other than the country that issue the denominating currency. A Eurobond represented a bearer security offered by issuers domiciled in any country but issued in other than the country's currency (Eun & Resnick, International Financial Management, p. 290). Typically, Eurobonds were underwritten by an international syndicate of banks. These securities were not subject to national regulation.

Go back to more than one and a haft century when Eurobonds first were accepted to trade. As Benzie (1992) said that it was at the beginning primarily a market in dollar bonds (p.11). The size of Eurodollar bonds grew because of the import exceeded export in the US current account. The bondholders of these dollars became investors in foreign dollar bonds. Since dollar became the most successful currency in over the world, the largest share of the Eurobonds market is the Eurodollar bonds because Eurobonds are preferred to by the currency in which the issuers agree to denominate payments. Following are the Euro-yen bonds, Euro-DM bonds (Nevitt & Fabozz, Project Financing, P. 85).

Today, Eurobonds make up to more than third quarters of the international bond market. The global market still sees the U.S dollar is the most important currency in international bonds financing. The reasons are Eurodollar bonds are liquid faster than other currencies and Eurobonds are typically bearer bonds that provide anonymity to the owner and thus allow a means for evading taxes on the interest received.

Another advantage of borrowing in the Eurobonds market is the lower cost in raising fund. Kim and Stulz (1988) said that euro-bond issuers are large. Most of them are well-known firms that sell products worldwide. They own strong brand names and their products are sold in many countries, so that euro-bond issuers may have lower foreign selling costs. To the extent that these firms are already recognized by international investors, global issuers are likely to have lower selling costs in foreign markets than their pure domestic counterparts. Since international bonds are mostly placed in the euro-bond market, we might expect that