What are Foreign Bonds

Some types of international bonds sound more like an athletic league listing than financial instruments with names like Kangaroo, Dragon, Bulldog and Yankee bonds. What these bonds have in common is that they are all international in the sense they can by issued by foreign countries or international corporations. For example, a Kangaroo foreign bond is denominated in Australian dollars, but is not issued by the Australian government. Rather, the issuer of the Kangaroo bond is the foreign organization, country, or corporation seeking to raise money exclusively in Australia.

Not all international bonds may be available for purchase according to Laura Bruce of Bankrate.com. However, as Bruce points out, there are other ways to invest in the foreign bond market. Moreover, in addition to bond funds, there are plenty of other international bonds to choose from, all with varying interest rates and ratings, which may also trade via accessible bond exchanges or purchasing services. Below is a listing of some of the different types of international bonds that can be purchased.

The United States Agency for International Development describes international bonds as coming in three types of markets 1. Eurobonds, 2. Foreign bonds, and 3. Global bonds.  These bonds are classified by who the issuer is, what currency the bond is denominated in and where the bond is sold. Eurobonds don’t have to be issued in or by the country of currency denomination, but foreign bonds do. Global bonds are a type of international bond that can be issued both in and out of the country of denomination.

Types of Foreign Bonds:

• Matador bonds

Matador bond is a term given to bonds issued in Spain by foreign organizations. These bonds, as with any bonds, may be subject to default. According to Investopedia, Matador bonds can be issued despite low bond ratings thereby increasing the potential risk to investors.

• Maple bonds

The Maple leaf is the symbol on the national flag of Canada hence the term Maple bond identifying this type of international bond. Maple bonds are issued in Canadian dollars by international entities such as corporations. These types of international bonds provide a lower risk avenue of foreign investment provided the bonds are highly rated. According to the bank of Canada, the majority of Maple bonds issued in the mid 2000’s where from U.S. and non-U.S. banks.

• Yankee bonds

Yankee bonds may sound like they are American bonds, but they’re not. Yankee bonds are a type of international bond because they are issued by foreign entities and denominated in U.S. Dollars after having registered with the national regulatory authority i.e. the Securities and Exchange Commission (SEC).

• Sumarai bonds

Similar to Yankee bonds in the sense registration and approval are required by Japan’s securities regulator i.e. the Japanese Financial Services Agency. Samurai bonds can be issued by entities outside of Japan. These types of international bonds are issued in Yen and can be purchased by the public to help raise Japanese investment capital.

Each type of international bond is subject to regulation by the country in which it is issued and the underwriting requirements of the bond. A list of international securities regulators can be found at Mondovisione for further investigation of international bond regulation. The terms of international bonds can vary considerably. For example, Eurobonds can be issued with fixed and variable rates in addition to asset backed and convertible bonds. Investigating the benefits, fees, commission, and terms of bonds are generally a good idea before considering purchasing these types of financial instruments.

Sources: (Date of record, October 20, 2010)

1. http://bit.ly/cAhYHe (US Agency for International Development)
2. http://bit.ly/9GvE4q (Bank of Canada)
3. http://bit.ly/ap2Whq (Bankrate.com)
4. http://bit.ly/cluqwS (Investopedia)
5. http://bit.ly/coml7q (Eurobonds.Info)