Domestic Bonds And National Bond Markets

The most prominent bonds selling in national bond markets are domestic bonds.  Because they are issued and traded in an internal market, domestic bonds are regulated by the domestic government and are traded according to the conventions of the local bond market. Domestic bonds are preferred by domestic investors. Borrowers in the domestic market tend to be domestic Government. Domestic borrowers often get better prices for bonds issued domestically than bonds issued in foreign countries. European corporation are finding that euro-denominated bonds offer attractive interest rates relative to bank financing – without the bother of a commercial bank looking over their shoulder. The success of the euro corporate bond market will come at the expense of lending by European commercial banks. Many European commercial banks are expanding their investment banking activities as their commercial lending business is displaced by public debt issues.  Corporate and government bonds in Canada, Japan, and the United States are issued as registered bonds. In countries requiring that bonds be issued in registered form, each issuer maintains a record of the owners of its bonds.  The convention in European countries is to use bearer bonds. Bearer bonds are not registered and can be redeemed by the holder. The principle advantage of bearer bonds is that they retain the anonymity of the bondholder.  European bond dealers quote bond prices as an effective annual yield that assumes annual compounding. Foreign bonds are issued in another country’s internal market and denominated in the local currency. Foreign bonds are issued by a foreign borrower but traded in another country’s internal market and denominated in the local currency. Foreign bonds are issued in the local currency to make the bonds attractive to local residents and regulated by local authorities. Bond trading conventions on foreign bonds typically conform to the local conventions rather than those of the borrower. Foreign bonds are known as “Yankee bonds” in the United States, as “Bulldog bonds” in the United Kingdom, and as “Samurai bonds” in Japan.