What Is a Eurobond? Definition, Benefits & How to Invest
What Is a Eurobond?
Eurobonds are international debt securities issued in a currency that is different from the currency of the country or market where they are sold. Despite the name, Eurobonds are not limited to Europe; they can be issued and traded worldwide. For example, a U.S. dollar-denominated bond sold in Japan is considered a Eurobond. Corporations, governments, and supranational organizations use Eurobonds to raise capital efficiently across borders.
How Eurobonds Work
Unlike domestic bonds, Eurobonds are typically underwritten by an international syndicate of banks and placed in multiple countries simultaneously. They are usually bearer bonds, meaning ownership is transferred by physical delivery, which simplifies trading and preserves investor anonymity. Interest payments are often made annually, and the bonds settle through clearing systems such as Euroclear and Clearstream.
Key Features
• Issued outside the jurisdiction of the currency in which they are denominated
• Generally free from withholding tax
• Available in various maturities and structures, including fixed, floating, and zero-coupon formats
• Quoted in major currencies like USD, EUR, GBP, and JPY
Benefits for Issuers and Investors
Issuers gain access to a broader pool of investors, potentially lowering borrowing costs and diversifying funding sources. Investors, meanwhile, enjoy access to high-quality credits, portfolio diversification, and often higher yields than comparable domestic bonds. Because Eurobonds are exempt from many local regulations, issuance speed is another advantage.
Risks to Consider
Eurobond holders face currency risk if the bond’s denomination differs from their home currency. Market liquidity can vary, especially for smaller issues. Additionally, bearer form can raise concerns about transparency and recovery if certificates are lost. Credit risk remains paramount; investors should always evaluate the issuer’s fundamentals and the bond’s covenants.
How to Invest in Eurobonds
Retail investors generally access Eurobonds through global bond funds or exchange-traded funds that specialize in international fixed income. High-net-worth individuals and institutions may purchase them directly via international broker-dealers. Always compare yields, credit ratings, and currency exposure before committing capital.
Bottom Line
Eurobonds offer an efficient, flexible way for issuers to tap global markets and for investors to diversify portfolios. Understanding their structure, benefits, and risks is essential to making informed investment decisions.