Organization Of The Eurobond Market

Eurobonds are different from foreign bonds. Foreign bonds are issued by a borrower in a domestic capital market other than its own and usually denominated in the currency of that market. Eurobonds are issued in Eurocurrencies by an international syndicate of banks in several international financial markets. Because Eurobonds are issued and traded on international financial markets, they are not subject to the rules and regulations that are common to most domestic bond markets, although there are interprofessional rules and regulations issued by ISMA. Issuers are also subject to the rules and regulations of the monetary authorities in their country of residence. In any case, the development of the Eurobond market is synonymous with the absence of withholding tax.  The first Eurobond borrowing dates back to 1963 when the interest equalization tax (IET) imposed by the United States stopped the development of the Yankee bond market dead in its tracks. A Yankee bond is a foreign bond issued in the US market, payable in dollars and registered with the SEC.  Eurobond issues characteristically have shorter maturities than those found on domestic markets. The large majority of Eurobond issues have maturities less than or equal to five years. The development of the Euronote facility and Euro MTNs in the 1980s reinforced this tendency. Euronotes are short-term, fully negotiable, bearer promissory notes, issued at a discount to face value and typically of one, three or six-month maturity. Euro MTNs are medium-term bearer notes of small denomination with maturities ranging from one to five years.  Issuing procedures have evolved since the Eurobond market’s inception.  At the beginning, the traditional issuing procedure, called “European”, was cumbersome. Syndicates often contained as many as several hundred members for the jumbo loans of USD 1 billion or more. Final investors were institutions like pension funds, investment funds and insurance companies, as well as private individuals attracted by the absence of withholding tax and the anonymity of bearer certificates.