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1、Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-1,Chapter 9 Non-U.S. Bonds,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-2,Learning Objectives,After reading this chapter, you will understand the reasons for the globalization of financial markets the classi
2、fication of global financial markets what the foreign bond market is what a global bond is the foreign exchange risk exposure of an investor who invests in nondollar-denominated bonds what a Eurobond is and the different types of Eurobond structures the classification of the global bond market in te
3、rms of trading blocs,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-3,Learning Objectives (continued),After reading this chapter, you will understand the euro government bond market the methods of distribution of new government bonds the issuance of linkers by sovereign issuers
4、 the motivation for investing in nondollar bonds factors considered in the rating of sovereign bonds how to compare yields on U.S. bonds and Eurobonds the Pfandbriefe market emerging market bonds,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-4,Classification of Global Bond Mar
5、kets,The global bond market can be classified into two markets: an internal bond market and an external bond market. The internal bond market (or national bond market) can be decomposed into two parts: the domestic bond market is where issuers domiciled in the country issue bonds and where those bon
6、ds are subsequently traded. the foreign bond market of a country is where bonds of issuers not domiciled in the country are issued and traded. Exhibit 9-1 (see Overhead 9-5) provides a schematic presentation of the global classification system.,Copyright 2010 Pearson Education, Inc. Publishing as Pr
7、entice Hall,9-5,Exhibit 9-1 Classification of Global Financial Markets,Internal Market (also called national market),Domestic Market,External Market (also called international market, offshore market, and Euromarket),Foreign Market,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9
8、-6,Classification of Global Bond Markets (continued),In the United States the foreign bond market is the market where bonds are issued by non-U.S. entities and then subsequently traded. Bonds traded in the U.S. foreign bond market are nicknamed Yankee bonds. Regulatory authorities in the country whe
9、re the bond is issued impose certain rules governing the issuance of foreign bonds.,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-7,Classification of Global Bond Markets (continued),The external bond market, also called the international bond market, includes bonds with the fo
10、llowing distinguishing features: they are underwritten by an international syndicate at issuance they are offered simultaneously to investors in a number of countries they are issued outside the jurisdiction of any single country they are in unregistered form. The external bond market is more popula
11、rly called the Eurobond market. A global bond is one that is issued simultaneously in several bond markets throughout the world.,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-8,Classification of Global Bond Markets (continued),Another way to classify the worlds bond market is
12、in terms of trading blocs. The trading blocs used by practitioners for this classification are dollar bloc, European bloc, Japan, and emerging markets. The dollar bloc includes the United States, Canada, Australia, and New Zealand. The trading bloc construct is useful because each bloc has a benchma
13、rk market that greatly influences price movements in the other markets.,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-9,Foreign Exchange Risk and Bond Returns,The return to U.S. investors from investments in non-U.S. bonds that are denominated in a foreign currency consists of
14、 two components: the return on the security measured in the currency in which the bond is denominated (called local currency return), which results from coupon payments, reinvestment income, and capital gains/losses changes in the foreign exchange rate,Copyright 2010 Pearson Education, Inc. Publishi
15、ng as Prentice Hall,9-10,Foreign Exchange Risk and Bond Returns (continue),An exchange rate is the amount of one currency that can be exchanged for another currency, or the price of one currency in terms of another currency. Since the early 1970s, exchange rates between currencies have been free to
16、float, with market forces determining the relative value of a currency. When a currency declines in value relative to another currency, it is said to have depreciated relative to the other currency. Alternatively, this is the same as saying that the other currency has appreciated.,Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall,9-11,Foreign Exchange Risk and Bond Returns (continue),If the foreign currency depreciates (declines in value) relative
