Definition
The term Eurodollar bond refers to any security issued in United States dollars by a bank or corporation located outside of the United States. Eurodollar bonds are issued when a corporation wishes to raise capital from investors located in foreign countries.
Explanation
When a corporation or government wishes to raise funds from investors located in another country, they have the option of issuing what are known as Eurodollar bonds. These securities are issued in United States dollars (USD) by an institution that is not located in the issuer's country. For example, a German bank holding bonds issued in USD by a French company would be holding a Eurodollar bond.
There is a misconception that Eurodollar bonds are issued in euro. The term is actually derived from the location (London, England) where the concept was first developed. These bonds are traded, issued, and held throughout the world, not just in Europe.
The cost of issuing Eurodollar bonds is lower than a dollar-denominated bond issued by a foreign corporation in the United States. Since they are issued in a non-U.S. country, they do not have to be registered with the Securities and Exchange Commission (SEC). This lowers the overall cost to place these securities in the market, which allows these bonds to carry slightly lower interest rates too.
Related Terms
The term kangaroo bond refers to an indenture issued in Australia, in Australian dollars, by a foreign bank or corporation. Kangaroo bonds are issued when a corporation wishes to raise capital from investors located in Australia.
Moneyzine EditorJanuary 23rd, 2024- The term yankee bond refers to an indenture issued in the United States, in U.S. dollars, by a foreign bank or corporation. Yankee bonds are issued when a foreign corporation wishes to raise capital from investors located in the United States.Moneyzine EditorSeptember 21st, 2023
- The term speculative-grade bond is used to describe securities deemed to not be of investment quality by a credit rating agency. Since the risk of default is higher with speculative grade bonds, investors will demand they pay a higher rate of interest too.Moneyzine EditorSeptember 21st, 2023
- The term payment-in-kind bond refers to a security that provides the issuer with the option of paying the holder with additional bonds rather than cash. Payment-in-kind bonds are oftentimes issued by corporations experiencing financial distress.Moneyzine EditorSeptember 20th, 2023
