What Are Eurobonds?: Italian
What Are Eurobonds?: Italian
What Are Eurobonds?: Italian
In 1963, Autostrade, an Italian motorway network, issued 60,000 15-year bearer bonds
with a face value of $250 U.S. dollars and a 5.5 percent annual coupon. The company
chose to issue the bonds in U.S. dollars instead of Italian lira to avoid the interest
equalization tax in the United States. The bonds became the world’s first eurobonds, as
they were issued in Italy and denominated in U.S. dollars rather than Italian lira.
Many eurobonds have unique nicknames that are commonly used among traders and
investors. For example, the term Samurai bond refers to Japanese yen-denominated
eurobonds, while the term Bulldog bond refers to British pound-denominated
eurobonds.
It’s important to note that eurobonds aren’t synonymous with foreign bonds. Foreign
bonds are bonds that are issued by foreign borrowers in a country’s domestic capital
market and denominated in their currency. However, foreign bonds are underwritten by
a domestic banking syndicate in accordance with domestic securities laws, while
eurobonds do not involve pre-offering registration or disclosure requirements—hence
their bearer bond nature.
It’s also important to note that the term Eurobond—with a capital “E”—refers to an
unrelated proposal for joint bonds issued by Eurozone countries. As a jointly issued
bond, Eurobonds would help lower borrowing costs for weaker members of the
Eurozone, such as Italy or Spain.
Benefits
Drawbacks
The most attractive benefits of a eurobond, compared to a foreign bond, are the
reduced regulatory requirements and greater flexibility. Eurobond disclosures are
governed by market practices rather than an official agency, which enables issuers to
avoid regulatory paperwork, reduce costs, and ultimately issue the bonds more quickly.
Issuers also have the flexibility of issuing bonds in the country and currency of their
choice.
For investors, eurobonds offer lower par values and aren’t subject to automatic
withholding taxes like many foreign bonds. The bearer bond nature of eurobonds means
that companies don’t have to disclose interest payments to tax authorities, which means
that it’s up to individuals to declare the income. Competition is also much greater in the
eurobond market than the foreign bond market, which translates to more competitive
pricing and liquidity.
The primary drawback of eurobonds is that they’re not regulated by domestic regulators,
which could increase their risks. Investors must also handle calculating and withholding
Investors looking into these bonds should be sure to conduct due diligence to ensure
that they are comfortable with the terms and risks associated with the bonds. These
bonds should also be included as part of a diversified portfolio to mitigate risks
stemming from any single country, currency, or asset class. It’s a good idea to consult
with a financial advisor or broker before purchasing eurobonds to fully understand these
unique risk factors.
Eurobonds can be purchased in the same way as most other bonds through global
stock exchanges. Currently, the Luxembourg Stock Exchange and the London Stock
Exchange are the two biggest hubs for investing in eurobonds, but there are many
issues around the world.
Definition of 'Libor'
Definition of 'LIBOR' Definition: LIBOR, the acronym for London Interbank Offer Rate, is the
global reference rate for unsecured short-term borrowing in the interbank market. It acts as a
benchmark for short-term interest rates. It is used for pricing of interest rate swaps, currency
rate swaps as well as mortgages. LIBOR is the average interest rate at which major global
banks borrow from one another. ... Each day, ICE asks major global banks how much they
Suppose a corporation issued a six-month floating rate note linked to LIBOR. On each coupon
date, the coupon amount will be computed as the par value of the note time one half of the 6
month coupon rate quoted 6 months earlier. Assuming that the prior six months, LIBOR rate is 4
per cent and the par value of the note is 100 pounds, the coupon amount at present will be
100time(4%/2) which is equal to 2.
Now, if the 6 month LIBOR rate of the current period changed to 3.25% then the next 6 month
coupon will be 100time(3.25%/2) equal 1.625.
Before ICE, LIBOR was set by British Bankers Association (BBA) but the rigging and