Glossary term
Foreign Bond
A foreign bond is a bond issued by a borrower in another country's market and usually denominated in that market's currency.
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What Is a Foreign Bond?
A foreign bond is a bond issued by a borrower in another country's market and usually denominated in that market's currency. For example, a non-U.S. company issuing U.S. dollar bonds in the United States would be issuing a foreign bond in the U.S. market.
The term focuses on where the bond is issued and which market's investors it targets. Foreign bonds can help issuers reach new investors, but they also create currency, regulatory, disclosure, tax, and market-access considerations.
Key Takeaways
- A foreign bond is issued by a foreign borrower in a domestic market.
- It is usually denominated in the currency of the market where it is sold.
- Foreign bonds differ from Eurobonds, which are issued outside the currency's home market.
- Investors face credit risk plus possible currency, liquidity, and legal risks.
- Well-known examples include Yankee bonds, Samurai bonds, and Kangaroo bonds.
How Foreign Bonds Work
A borrower may issue bonds abroad to diversify funding sources, access a deeper investor base, match revenues or assets in a particular currency, or take advantage of market conditions. The borrower must usually follow the host market's securities rules and investor disclosure requirements.
Investors may buy foreign bonds to gain exposure to international borrowers while using a familiar market currency. That can reduce one layer of currency complexity, but it does not remove issuer credit risk or country-related risk.
Foreign Bond Examples
Bond nickname | Market | Typical currency |
|---|---|---|
Yankee bond | United States | U.S. dollar |
Samurai bond | Japan | Japanese yen |
Kangaroo bond | Australia | Australian dollar |
Maple bond | Canada | Canadian dollar |
Foreign Bond Versus Eurobond
A foreign bond is issued in a domestic market by a foreign borrower and typically follows that domestic market's rules. A Eurobond is issued outside the country whose currency it uses. The names can be confusing because Eurobond does not necessarily mean a bond issued in Europe or denominated in euros.
The distinction matters for disclosure, investor base, settlement, taxation, and market conventions. Two bonds can have the same issuer and currency but different legal and market structures.
Investor Risk Profile
Foreign bonds can offer diversification and yield opportunities, but investors need to understand the issuer, currency exposure, liquidity, tax treatment, and governing law. A bond denominated in the investor's home currency may still be affected by the issuer's foreign business, political environment, or home-country economy.
Credit ratings can help, but they are not a substitute for understanding the bond's structure and risks. The investor is still lending money to a borrower whose cash flows may depend on conditions outside the investor's domestic market.
The Bottom Line
A foreign bond lets an overseas borrower raise money in another country's bond market. It can give investors international exposure through a familiar market structure, but credit, currency, liquidity, and legal risks still need attention.