A global bond is a bond offered within several different markets at the same time. A bond is a loan by an investor to a company or the government in exchange for a prefixed interest rate. The investor can be a corporation or an individual. A bondholder will earn interest based on the company’s strength.
A global bond is usually issued by large, international corporations with high credit ratings. Some examples of companies that issue these bonds are auto companies such as Ford in the United States or international banks such as ABN-Amro in the Netherlands. A global bond can also be issued from a province, such as Ontario, Canada.
Global bonds are issued in different currencies and distributed in the currency of the country where it is issued. For example, a global bond issued in the United States will be in US Dollars (USD), while a global bond issued in the Netherlands will be in euros. Bonds are loaned in terms of years; for example, a three-year $2 billion USD global loan will be paid back by the country it is loaned to within three years at face value plus the interest rate.
Global bonds offer the loan to several businesses at once, which reduces the borrowing cost significantly. As far as loans go, global bonds are a relatively safe method of international investing. Political and currency risks are minimized with a global government bond because they are registered with the Securities and Exchange Commission (SEC), and they must meet certain criteria before being issued. Additionally, credit ratings are assigned to global bonds by S&P and Moody’s Investor Service.
The global bond market can be broken down into two divisions: internal bond market and external bond market. The internal, or national, bond market can be further subdivided into the domestic bond market and the foreign bond market. The domestic market describes the trading of bonds in the country where the bond is issued. The foreign bond market explains what becomes of the global bond in countries outside of the place of issuance.
The external bond market, also called the international bond market, offers the bond to investors in different countries. It is distinct from the foreign bond market in that it is issued outside the jurisdiction of one country. Also called the offshore bond market or Eurobond market because it began in Europe, this market sees the exchange of global bonds across national borders.