What Are Eurobonds?

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.

Eurobonds, or external bonds, are international bonds that are denominated in a

currency other than that of the issuer. Despite their name, eurobonds aren’t necessarily
denominated in euros and can take many different forms. Euroyen and Eurodollar
bonds, for example, are denominated in Japanese yen and U.S. dollars, respectively.
Most eurobonds are bearer bonds that are electronically traded through clearinghouses,
such as Euroclear and Clearstream.

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.

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Before investing in eurobonds, it's important to consider their benefits and drawbacks,
and how international investors can invest in them.

Benefits

 Unique diversification of investments in other countries

 More competitive pricing and liquidity
 Lower par value and no automatic withholding of taxes

Drawbacks

 Increased risk due to no domestic regulation

 Investor responsibility for calculating and withholding taxes
 Foreign exchange risk, such as an adverse change in the
exchange rate before the transaction concludes

Benefits and 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

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 taxes on their own rather than having them automatically withheld or reported to tax
authorities. And finally, investors must also factor in any foreign exchange risks
associated with the issues, which can be volatile when dealing with emerging or frontier
markets.

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.

How to Invest in Eurobonds

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.

ARTICLE TABLE OF CONTENTS

 What Are Eurobonds?

 Benefits and Drawbacks
 How to Invest in Eurobonds

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

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would charge other banks for short-term loans. The association takes out the highest and
lowest figures, then calculates the average from the remaining numbers. LIBOR serves
maturities that range from overnight to one year. Each business day, banks work with 35
different LIBOR rates, but the most commonly quoted rate is the three-month U.S. dollar rate.
IT HAS been called the world's most important number. LIBOR, which stands for the London
Interbank Offered Rate, is a benchmark interest rate, representing the amount that banks pay
to borrow unsecured from each other. ... The rigging scandals that made LIBOR notorious in
2012 showed how this process could be manipulated

Description: LIBOR is administered by the Intercontinental Exchange or ICE. It is computed for

five currencies with seven different maturities ranging from overnight to a year. The five
currencies for which LIBOR is computed are Swiss franc, euro, pound sterling, Japanese yen
and US dollar. ICE benchmark administration consists of 11 to 18 banks that contribute for each
currency.
The official LIBOR interest rates are announced once a day at around 11:45 a.m. London time
by ICE Benchmark Administration (IBA). The rates may only be published by partners of the IBA
like us. This website shows the current LIBOR interest rates daily between 5 and 6 pm London
time.
The rates received from the banks are arranged in descending order and the top and bottom
quartiles are excluded to remove outliers. The arithmetic mean of the remaining data is then
computed to get the LIBOR rate. The process is repeated for each of the 5 currencies and 7
maturities, thereby producing 35 reference rates. 3 month LIBOR is the most commonly used
reference rate.

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

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 manipulation of LIBOR during the financial crisis of 2008 has led the financial market watchdogs
to replace the BBA LIBOR with a new administrator. On the basis of Wheatley Review
Recommendation, the Hogg Tendering Advisory Committee selected a new entity called the
Intercontinental Exchange for the administration of LIBOR.

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