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An international bond is a type of long-term debt security that is generally issued to an investor in a country by a non-domestic entity. An international bond essentially works like a loan, with the investor being the lender and the issuing entity being the borrower. International bonds can provide bondholders with the ability to earn fixed interest payments for a set period of time. Most international bonds have a face value, interest rate, and maturity date. Entities that issue these types of bonds often do so in order to help finance property and equipment purchases or to help fund current operations.
In general, the process of purchasing an international bond works like a regular bond purchase. Typically, an investor purchases the international bond from an issuing company, bank, or government for a set face value. The investor then earns interest payments at periodic intervals until the bond reaches its maturity date. Once the bond matures, the initial principal is paid back to the investor in full.
The international bond market includes global bonds, foreign bonds, Eurobonds, and Brady bonds. Global bonds are offered in several countries simultaneously and can be issued in the same currency as the country of issuance. Global bonds are typically issued by international companies that possess high credit ratings. Foreign bonds are issued by foreign entities and are denominated in the currency of the domestic market. Examples of foreign bonds include Samurai bonds in Japan, Yankee bonds in the United States, and Bulldog bonds in the United Kingdom.
A Eurobond is a type of international bond that is issued using currency that differs from the domestic market country’s currency. Eurobonds are named according to the currency in which they are denominated in. For example, a Euroyen bond is denominated in Japanese yen.
Brady bonds are designed to help emerging market countries manage their international debt. Brady bonds are issued by an emerging market country and denominated in U.S. dollars. Brady bonds are generally backed by U.S. Treasury zero-coupon bonds.
International bond funds can provide investors with a way to diversify their investment portfolios. An international bond fund is a type of fund that invests a percentage of its assets, often 40% or greater, in international bonds. These funds generally hold investment-grade bonds from countries that are politically stable and considered developed countries. Investors that choose to place their money in an international fund can realize income from the bond interest as well as from currency fluctuations.
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