International Bond Market

12 Key excerpts on "International Bond Market"

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  eBook - PDF

  International Financial Management

  • Geert Bekaert, Robert Hodrick(Authors)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  If they are issued simultaneously in various markets, outside the specific jurisdiction of any country, they are called Eurobonds. 8. The foreign bond and Eurobond markets have a market capitalization of about $21 trillion. 9. Because foreign bonds are subject to local regulations, in some countries, such as the United States, they require a lengthy registration process. 10. Eurobonds are placed among investors with the help of a syndicate of financial institutions. 11. The acceleration of globalization, including tax harmonization, financial deregu- lation, and the relaxation of capital controls, has blurred traditional distinctions between domestic and international bonds. Global bonds, for example, are issued simultaneously in a domestic market and in the Eurobond market. 12. Bonds can have a fixed interest rate (straight issues), no interest at all (zero-coupon bonds), or a floating interest rate that varies with LIBOR rates. Convertible bonds allow the holder to convert the bonds into shares, or stock. Dual-currency bonds are issued in one currency and pay interest in that cur- rency, but the final principal payment is in another currency. 13. Banks are MNCs and are subject to international banking regulation in the form of capital adequacy standards set by the Basel Committee. 14. To engage in international banking activities, banks may use correspondent banks, representative offices, foreign branches, affiliate banks, or subsidiary banks. These different organizational forms determine the degree of service and control exercised by the parent bank. 15. Offshore banking centers conduct international banking activities in a “lightly” regulated setting. International banking activities can also be organized in the United States via an Edge Act bank or international banking facility. 16. Eurocredits are long-term bank loans extended by a syndicate of banks in countries other than the country in whose currency the loans are denominated.

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  The Economist Guide To Financial Markets 7th Edition

  Why they exist and how they work

  • Marc Levinson(Author)
  • 2018(Publication Date)
  • Economist Books

    (Publisher)

  4

  Bond markets

  THE WORD “BOND” means contract, agreement, or guarantee. All these terms are applicable to the securities known as bonds. An investor who purchases a bond is lending money to the issuer, and the bond represents the issuer’s contractual promise to pay interest and repay principal according to specified terms. A short-term bond is often called a note.

  Bonds were a natural outgrowth of the loans that early bankers provided to finance wars starting in the Middle Ages. As governments’ financial appetites grew, bankers found it increasingly difficult to come up with as much money as their clients wanted to borrow. Bonds offered a way for governments to borrow from many individuals rather than just a handful of bankers, and they made it easier for lenders to reduce their risks by selling the bonds to others if they thought the borrower might not repay. The earliest known bond was issued by the Bank of Venice in 1157, to fund a war with Constantinople.

  Today, bonds are the most widely used of all financial instruments. The size of the global bond market in 2017 was approximately $95 trillion, of which roughly $72 trillion traded on domestic markets, and another $23 trillion traded outside the issuer’s country of residence.

  In the United States, the largest single market, nearly $800 billion worth of bonds changed hands on an average day in 2017, and the value of outstanding bonds at the end of 2017 exceeded $40 trillion. Table 4.1 shows the countries with the largest domestic debt markets.

  Bond issuance grew rapidly in many countries from 2009 to 2012, for a variety of reasons. Poor economic conditions encouraged many governments to run large budget deficits, funded by the sale of government bonds, in order to stimulate their economies. Extremely low long-term interest rates made it attractive for many companies to issue bonds even if they had no immediate need for the money. The improved economic health of some major countries, notably China, Brazil and Mexico, enabled companies in those countries to borrow far more cheaply than in the past in both domestic and foreign currency, contributing to an emerging-market bond boom that ended in 2013. China, where domestic bond issuance was minor in the early 2000s, now has the world’s third-largest domestic bond market.

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  Investment Banks, Hedge Funds, and Private Equity

  • David P. Stowell(Author)
  • 2012(Publication Date)
  • Academic Press

    (Publisher)

  Although London is the unofficial center of the Euromarkets, Frankfurt and Paris are large centers as well. One reason European cities tend to dominate this market is due to their geographic convenience to markets in the Americas and Asia. Euromarkets can also be considered to include certain Caribbean countries such as the Cayman Islands, which have significant foreign deposits as well. The Euromarkets are attractive because they are, for the most part, unregulated and sometimes offer higher yields to investors. This market has become a significant source of global liquidity.

  Eurobonds are debt instruments that are listed on an exchange in bearer form (i.e., owned by whoever is holding the security instead of in registered form with registered owners). They are issued and traded outside the country whose currency the Eurobond is denominated in, and outside the regulations of a single country. Interest income from these bonds is exempt from withholding tax and the bonds are generally not registered with any regulatory body. For example, while a U.S. corporation’s domestic bonds are subject to SEC oversight, its Eurobonds are not (unless offered concurrently to U.S. investors). The market is self-regulated through the International Capital Markets Association (ICMA). Eurobonds are generally issued by multinational corporations or sovereign entities of high credit quality. An international syndicate of banks typically underwrites a Eurobond issuance and distributes the bonds to investors in a number of countries (other than the country of the issuer).

  Eurobonds can be issued in many forms, including fixed-rate coupon bonds (interest is usually payable annually and principal is due in bullet form), convertible bonds, zero-coupon bonds, and floating rate notes. Eurobonds issued in U.S. dollars are called Eurodollar bonds; Eurobonds issued in Japanese yen are called Euroyen bonds. There are many other currencies in which Eurobonds are issued, including pound sterling, euro, and Canadian dollar, among others. In each case, the Eurobond is named after the currency in which it is denominated. Almost all Eurobonds are owned “electronically” rather than in physical form and are settled through either Euroclear or Clearstream, two global electronic depositary systems.

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  Understanding Investments

  Theories and Strategies

  • Nikiforos T. Laopodis(Author)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Bank of International Settlements (BIS) estimates. One feature of the International Bond Market is that it allows investors to broadly diversify their investment portfolios in their search for attractive returns worldwide.

  Figure 12.1 shows the size of the international debt (fixed-income) and equity markets as of 2018, focusing on specific countries/regions of the world. The figure clearly shows that the Eurozone is second to the United States in the issuance of such instruments, followed by China and Japan. Moreover, according to a study by the European Central Bank, the European, US, and Japanese government bond markets together accounted for about 61% of all government bonds outstanding.1 According to the same study, nongovernment bond issuance was also on the rise but still lagging behind that of sovereign issuers.

  Japan has now the fourth largest government bond market in the world behind the United States, the Eurozone, and China (according to Figure 12.1 ). The Bank of Japan (BoJ) and the Japanese government guarantee yen-denominated bond issues, which makes such securities very attractive worldwide. The Japanese corporate bond market resembles that of the United States, where private companies and banks issue bonds; it is regulated by the BoJ and the Japanese Ministry of Finance. The Market Flash box highlights the recent outstanding bond offerings by the United States and Japan.

  MARKET FLASH

  The US and Japanese government bond markets

  Japan’s bond sell-off on September 30, 2019, forcefully suggests that without central bank buying, liquidity in bond markets will dry up around the world, sending bond yields higher and bond prices lower. Investors in Japan wouldn’t want to buy their bonds knowing that a major buyer of bonds wasn’t intending on buying as much anymore. Two other factors contributed to the sell-off: the country’s soaring general government debt, standing at 238% of its GDP in 2018; and the country’s aging population, which could worsen the country’s debt situation. The 10-year Japanese government bond has a negative yield, and it rose by 6.5 basis points to negative 0.16%.

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  International Capital Markets : Developments and Prospects, 1983

  • John Lipsky, Peter Keller, Donald Mathieson, and Richard Williams(Authors)
  • 1983(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  IV International Bond Markets

  Passage contains an image

  Introduction

  Since the fourth quarter of 1981, international markets have witnessed historically high rates of bond issuance. During 1982, total international bond issues rose by 50 percent, with Eurocurrency bond issues increasing by over 75 percent and foreign bond issues by 18 percent.35 Investor demand for new issues was stimulated by the prospect of declining long-term interest rates, the reappearance of a positively sloped yield curve, and the continuance of high ex post real yields, especially on longer-term bonds. The supply of new issues was generated by the financing needs of the fiscal authorities in many of the industrial countries, the desire of private corporations to secure longer-term sources of finance, and the borrowing programs of the various multinational institutions. Most of the borrowers and lenders in the International Bond Markets were from the industrial countries, and the non-oil developing countries were generally absent from the bond markets, especially during the second half of 1982 and the first quarter of 1983.

  The U.S. dollar continued to serve as the primary currency of denomination. Bond maturities did not change significantly in most markets; where some change was observed, however, it mainly took the form of a movement away from both short-term and long-term bonds into medium-term instruments. A number of new bond market instruments and new funding techniques appeared. Examples were interest rate swaps that involved the exchange between borrowers of fixed rate debt for floating rate debt, extendable bonds that offered the option of changing the maturity of the bond, and partially paid and deferred payment bonds. The latter appealed to investors expecting declines in nominal interest rates. These new instruments, along with the continued utilization of the traditional straight debt instruments, were all designed to further increase the attractiveness of longer-term bonds for investors and to give borrowers access to various national bond markets.

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  How China Grows

  Investment, Finance, and Reform

  • James Riedel, Jing Jin, Jian Gao(Authors)
  • 2020(Publication Date)
  • Princeton University Press

    (Publisher)

  In addition to its role in financing long-term investment and government budget deficits, as well as providing a bench-mark for pricing financial assets throughout the system, the bond market is also important for the conduct of monetary policy. Government bonds in particular, but in principle any bond, can be used by the central bank to conduct open mar-ket operations to manage money supply. The weaker the bond market, the less effectively the central bank can use this instrument of monetary policy and the more it will be forced to rely on more clumsy instruments, such as changing reserve requirements of commercial banks and the interest rate they earn on required reserves. 6.2. The Bond Market in China Although China’s bond market has developed very rapidly since its initiation in the early 1980s, it nevertheless plays a 116 • Chapter 6 modest role in China’s overall financial system (Bottelier, 2004). As figure 6.1 indicates, the banking sector dominates the financial system, accounting for over 70 percent of total financial assets. Stocks and bonds combined account for the remainder, stock market capitalization having fallen as a share of total financial assets since 2000 as a result of the fall in stock market prices (discussed in the next chapter). China’s bond market is not only a small part of the financial system, but also is entirely dominated by the government. As of the end of 2004, as table 6.1 indicates, government bonds accounted for 97 percent of total bonds outstanding, with the remaining 3 percent mainly bond issues of state-owned enter-prises and commercial banks.

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  Global Financial Development Report 2015/2016

  Long-Term Finance

  • World Bank(Author)
  • 2015(Publication Date)
  • World Bank

    (Publisher)

  Money mar-kets provide investors with instruments to manage risks and maturities and are also important for sec-ondary market liquidity. In this sense, an effectively functioning money market provides key market pric-ing at the short end of the yield curve, influencing the rate of longer-term corporate bonds. Second, government debt markets are the corner-stone of domestic corporate bond markets. Sound sovereign debt management with regular issues of benchmark bonds at different maturities is central to building a yield curve, which is necessary to price corporate bonds efficiently (especially in the longer term). Additionally, the fi nancing needs of the cen-tral government determine the scope for corporate bonds, especially in relatively small markets where the government and private entities typically compete for limited long-term funding. As some studies report, however, it is important to also take into account the possibility of crowding-out effects between government and corporate bond markets through competition for investors’ funds (Friedman 1986). For example, Graham, Leary, and Roberts (forthcoming) documented a negative association between government borrowing and corporate debt issuance, which is consistent with a crowding-out effect on the demand curve for corpo-rate debt. Third, the banking system also plays an impor-tant role as a supplier, underwriter, and buyer of cor-porate bonds (for itself or for its clients). This role will evolve as countries develop, the financial system deepens, and the domestic investor base becomes diversified. At the same time, the banking system provides fi nancial services to households that can-not access securities markets and, as a result, helps enhance market liquidity and lengthens the maturity of fi nancial securities because the banking system can hold securities on behalf of those households.

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  Japanese Financial Markets

  • Junichi Ujiie(Author)
  • 2002(Publication Date)
  • Woodhead Publishing

    (Publisher)

  348 The bond market 15.3 Trading value of public and corporate bonds by investor categories (excluding Treasury and financing bills; ¥ tr.). Note: Other' includes the postal savings/postal life insurance system. Source: as Fig. 15.1. accounts) hold bonds in their investment portfolios as a substitute for lending, and the net amount of their bond purchases and sales changes in accordance with changes in interest rates and the growth in their lending. These financial institutions typically buy and sell bonds with short durations, whereas trust banks (through their trust accounts, which hold pension assets) and insurance companies -both of which have liabilities with long durations - usually buy and sell bonds with long and super-long maturities. The agricultural financial institutions, which are a cross between banks and insur-ance companies, and the postal savings/postal life insurance system have had a major impact on Japan's bond market. Given the huge amount of assets they manage, they tend to take on significant dura-tion risk. They were major buyers in the market during the time the BOJ instituted a zero interest rate policy. In addition, foreign investors - who often use different bond valuation metrics than Japanese investors do - have been increasing their share of the bond market, and their influence, each year. TRADING, SETTLEMENT AND TAXES Bonds in Japan are typically traded on a simple-yield basis; dealers rarely provide the market prices of bonds. The relationship between the simple yield (the simple yield to maturity) and the market price is as follows: [coupon rate + (100 - price)/term to maturity] Simple yield = price 349 Japanese Financial Markets Compared with the yields given by the compound interest method used for US Treasuries and the ISMA (International Securities Market Association) compound interest method used for Eurobonds, the simple yield is generally higher when the bond is trading below par and lower when the bond is trading above par.

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  Financial Reforms in Modern China

  A Frontbencher's Perspective

  • Sun Guofeng(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Benchmark Interest Rate: refers to the interest rate acting as the bench- mark to other interest rates within the interest rate system; and usually, the short-term benchmark interest rate is the interbank lending and bond repo rates and the medium- and long-term benchmark interest rate is the medium- and long-term yields of treasury bonds. Market Maker: institutions that are willing to, at a certain time, purchase a security at a price and sell out the same amount of the same security at another price, thus realizing the balance of market supply and demand as well as continuous trading. Convertible Bond: the debt instruments with fixed interest rates, the holder of which is entitled to exchange the bonds and all the remaining interests with the issuer for common shares or other debt instruments of a certain quantity at a date and price as prior agreed. T-bond Futures: the futures contracts based on the nominal mid- and long-term treasury bonds, in which the buyer and the seller agree to conduct reverse purchase and sale of treasury bonds at a particular date in the future, with transmission of guarantee funds by the two parties on a percentage basis. Evolution of China’s Bond Market 3 China’s bond market in a modern sense started from the resumption of the issuance of treasury bonds in 1981 and has made great achievements after twenty years’ development, especially after 1997. In the current national bond market, the bond outstanding is valued at more than RMB2 trillion, and the average daily trading volume exceeds RMB20 billion; a great num- ber of institutions and individuals flood into the bond market for profit. The bond market has left the stock market behind, whether in respect of quantity and trading volume of trading instruments or the types and quantity of investors. The imbalanced pattern of China’s financial market, which placed much weight on the stock market but overlooked the bond market in the past, has experienced fundamental changes.

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  International Capital Markets : Developments and Prospects, 1984

  • Maxwell Watson, Peter Keller, and Donald Mathieson(Authors)
  • 1984(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  IV Developments in International Bond Markets and Other Capital Flows

  Passage contains an image

  Developments in International Bond Markets

  Overview

  Since 1981, issues of international bonds43 have risen in absolute terms and even more sharply relative to the declining volume of international syndicated loans. Following large increases in 1981 and 1982, international bond issues rose only slightly in 1983 to $77 billion, of which $48 billion represented net new issues (Table 9 ).44 In 1983, Eurobond issues remained at their 1982 value of $50 billion, and foreign bond sales rose from $25 billion to $27 billion. In contrast to the sharp decline in nominal interest rates experienced in 1982, most financial markets witnessed relatively limited changes in interest rates (especially for long-term maturities) between December 1982 and December 1983, although the average level of rates in 1983 was lower than in the preceding year. Declining rates of inflation in many financial market countries, however, implied the continuation of high ex post real returns on bonds. The vast majority of international bonds were issued and purchased by entities in the industrial countries. Developing countries as a group continued to have only very limited access to these markets. The relative importance of different types of bonds has been strongly affected by the rapid expansion in the issuance of floating rate notes.

  Interest Rate Developments

  Charts 4 and 5 and Table 37 show interest rate movements in the major financial markets during 1983. Between December 1982 and December 1983, short-term interest rate movements were relatively limited; in most cases, rates fluctuated within a 1 percentage point band throughout the year. These developments in conjunction with declining inflation sustained high ex post real interest rates (Table 36

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  Industrial Map Of China's Financial Sectors

  • ...China Economic Monitoring & Analysis Center And Xinhua Holdings, China, Shixiong Zhao(Authors)
  • 2012(Publication Date)
  • World Scientific

    (Publisher)

  83 Chapter 4 BOND MARKET 4.1 Overview of Bond Market 4.1.1 Structure of bond market In terms of trading places, China’s bond market can be divided into over-the-counter market (OTC market) and floor trading market. The former mainly refers to the inter-bank bond markets and over-the-counter trade in com-mercial banks; and the latter refers to exchange traded bond markets (including Shanghai Stock Exchange and Shenzhen Stock Exchange). Seen from trading volume, inter-bank bond market is the main trading place for China’s bond market, and plays a leading role in China’s bond market. China’s bond market mainly includes the following categories: (1) Government bond: including book-entry Treasury bonds (T-bonds), saving bonds (certificate), and saving bonds (electronic). (2) Central bank bond: namely central bank bill whose issuer is the People’s Bank of China, and whose maturity ranges from 3 months to 3 years, mainly of the short-term (less than 1 year) bills. (3) Financial bond: including policy financial bond, commercial banks bond, special financial bond, bond of non-bank financial institutions, securities bond, short-term note of secutiries. Among these, commercial banks bond include commercial banks junior bond and commercial banks general bond. (4) Enterprise bond: including central enterprise bond and local enterprise bond. (5) Short-term note: issued by non-financial enterprises qualified as a legal person within the Chinese territory. (6) Asset backed securities. (7) Non-bank financial bond: including bond of non-bank and financial institutions and short-term note of securities. (8) International agency bond: bond issued by international agencies within the Chinese territory. (9) Convertible bond. 84 Industrial Map of China’s Financial Sectors The above bond categories are not necessarily traded on all the markets.

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  Fixed Income Analysis

  • (Author)
  • 2022(Publication Date)
  • Wiley

    (Publisher)

  A bond tender offer involves an issuer making an offer to existing bondholders of the company to repurchase a specified number of bonds at a particular price and a specified time. Companies use such offers to restructure or refinance their current capital structure. Investors generally receive a price that is above the market value of the bond, thereby enticing them to participate; yet this price is likely below par, and hence also a win for the issuer. Note, however, that the price at which the bonds are repurchased is not determined in advance at the time of the origi- nal issuance of the bond. It merely reflects the market conditions at the time of the repurchase. The liquidity demands of fixed-income investors have evolved since the early 1990s. The type of investors that would buy and hold a bond to maturity, which once dominated the fixed- income markets, has been supplanted by institutional investors who trade actively. The dynamics of global fixed-income markets reflect this change in the relative demand for liquidity. We will illustrate how secondary markets work by using the example of Eurobonds. The most important Eurobond trading center by volume is in London, although a large number of market participants are also based in Brussels, Frankfurt, Zurich, and Singapore. Liquidity is supplied by Eurobond market makers, of which approximately 35 are registered with the International Capital Market Association (ICMA). ICMA is an association of banks and other financial institutions that provides a regulatory framework for International Bond Markets and that is behind much of the established uniform practices observed by all market participants in the Eurobond market. The key to understanding how secondary bond markets are structured and function is to understand liquidity. Liquidity refers to the ability to trade (buy or sell) securities quickly and easily at prices close to their fair market value.

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