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The Eurobond Market and Its Relevancy


Date Posted: 6/24/2014 7:12:45 AM

Posted By: wanjala willies  Membership Level: Silver  Total Points: 626

Before we discuss euro bonds, it will be relevant we grasp a clear understanding of the evolutionary grounds of the same. A bond is a debt instrument. It is obligations of a borrower of funds to make specific interests and principal payments to the holder on specific dates. Bonds may also be known as fixed income securities. It’s thus important to note that bonds are traded in bond market. Bond market is simply the place where bonds are issued and traded. Conversely bond marked can be defined as a channel through which money from those with surplus of funds to those with productive investment opportunities.

Similarly to the euro bonds, they trade in bond market. The markets under which euro bonds are allowed to trade in are known as international bonds market or simply euro market. Euro market is that market under which bonds being traded in are underwritten by international syndicate of international investment bank offered to investors in different countries.
Currently euro market has gain popularity across the world due to high capital demand by companies and government budgeting as well as planning. There basically exist three types of bonds traded in euro market. These bonds are; euro bonds, foreign bonds and Brady and sovereign bonds. We shall simply narrow down to euro bonds.

A euro bond is a long term bond issued and sold outside the country of the currency in which they are denominated. The term euro means the bonds are issued outside the country in which currency is denominated. Euro bonds thus are issued outside Europe and in other countries currency other than euro. The issuance is meant to avoid taxes and regulations by hosting countries as well as capital market regulators.

Euro bonds grew from the point that most United States Corporation were limited with the amount

of capital they would borrow domestically. The firms thus created euro bonds that were not subject to US regulations. Companies thus could access capital at a low cost and reduced cost of capital. The euro bonds are issued in denominations of $10 000 and interest is paid semi annually. They depend on good credit rating of the firm thus rated by the rich, standard and the poor. These very euro bonds are placed in primary market by investment banks act. The euro bond issuer basically selects the currency in which the bond will be denominated. Remember, the choice of currency in and interest rate changes affects the overall cost of the bond to the issuer.

There exist a challenge to the nation or the country borrowing as it will be required that it be rated highly by the international rating agencies in order to access the market or it will probably be necessary for a company to offer a guarantee from its government. However for a country borrowing from euro market, minimal legal restrictions exist this due to the fact that the country is always certain of future existence unlike a business that may go undergrounds at any time. The other challenge is the fact that euro market borrowing is likely to take place in dollars or any hard money equivalent. This poses a hard task to the borrower as it has to discharge the proof to the market that it has sufficient hard currency to fully service the interest and principal payments.
That's what really entails a euro bond that Kenya currently is undertaking to engage into. You should always remember that the liability of the bond is likely to be settled in a number a couple of years to come since the burden is spread across.

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