The Eurobond market is made up of investors, banks, borrowers, and

trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special
kind of bond issued by European governments and companies, but often
denominated in non-European currencies such as dollars and yen. They are also
issued by international bodies such as the World Bank. The creation of the
unified European currency, the euro, has stimulated strong interest in euro-
denominated bonds as well; however, some observers warn that new European
Union tax harmonization policies may lessen the bonds' appeal.

Eurobonds are unique and complex instruments of relatively recent origin. They
debuted in 1963, but didn't gain international significance until the early 1980s.
Since then, they have become a large and active component of international
finance. Similar to foreign bonds, but with important differences, Eurobonds
became popular with issuers and investors because they could offer certain tax
shelters and anonymity to their buyers. They could also offer borrowers favorable
interest rates and international exchange rates.

DEFINING FEATURES

Conventional foreign bonds are much simpler than Eurobonds; generally, foreign
bonds are simply issued by a company in one country for purchase in another.
Usually a foreign bond is denominated in the currency of the intended market.
For example, if a Dutch company wished to raise funds through debt to investors
in the United States, it would issue foreign bonds (dollar-denominated) in the
United States. By contrast, Eurobonds usually are denominated in a currency
other than the issuer's, but they are intended for the broader international
markets. An example would be a French company issuing a dollar-denominated
Eurobond that might be purchased in the United Kingdom, Germany, Canada,
and the United States.

Like many bonds, Eurobonds are usually fixed-rate, interest-bearing notes,

although many are also offered with floating rates and other variations. Most pay
an annual coupon and have maturities of three to seven years. They are also
usually unsecured, meaning that if the issuer were to go bankrupt, Eurobond
holders would normally not have the first claim to the defunct issuer's assets.

However, these generalizations should not obscure the fact that the terms of
many Eurobond issues are uniquely tailored to the issuers' and investors' needs,
and can vary in terms and form substantially. A large number of Eurobond
transactions involve elaborate swap deals in which two or more parties may
exchange payments on parallel or opposing debt issues to take advantage of
arbitrage conditions or complementary financial advantages (e.g., cheaper
access to capital in a particular currency or funds at a lower interest rate) that the
various parties can offer one another.

MARKET COMPOSITION

The Eurobond market consists of several layers of participants. First there is the
issuer, or borrower, that needs to raise funds by selling bonds. The borrower,
which could be a bank, a business, an international organization, or a
government, approaches a bank and asks for help in issuing its bonds. This bank
is known as the lead manager and may ask other banks to join it to form a
managing group that will negotiate the terms of the bonds and manage issuing
the bonds. The managing group will then sell the bonds to an underwriter or
directly to a selling group. The three levels—managers, underwriters, and sellers
—are known collectively as the syndicate. The underwriter will actually purchase
the bonds at a minimum price and assume the risk that it may not be possible to
sell them on the market at a higher price. The underwriter (or the managing
group if there is no underwriter) sells the bonds to a selling group that then
places bonds with investors. The syndicate companies and their investor clients
are considered the primary market for Eurobonds; once they are resold to general
investors, the bonds enter the secondary market. Participants in the market are
organized under the International Primary Market Association (IPMA) of London
and the Zurich-based International Security Market Association (ISMA).
After the bonds are issued, a bank acting as a principal paying agent has the
responsibility of collecting interest and principal from the borrower and
disbursing the interest to the investors. Often the paying agent will also act as
fiscal agent, that is, on the behalf of the borrower. If, however, a paying agent acts
as a trustee, on behalf of the investors, then there will also be a separate bank
acting as fiscal agent on behalf of the borrowers appointed.

In the secondary market, Eurobonds are traded over-the-counter. Major markets

for Eurobonds exist in London, Frankfurt, Zurich, and Amsterdam.

Read more: Eurobond Market

http://www.referenceforbusiness.com/encyclopedia/Ent-Fac/Eurobond-
Market.html#ixzz1GIH5xdTU

http://www.referenceforbusiness.com/encyclopedia/Ent-Fac/Eurobond-Market.html

Usually, a eurobond is issued by an international syndicate and categorized according to the

currency in which it is denominated. A eurodollar bond that is denominated in U.S. dollars and
issued in Japan by an Australian company would be an example of a eurobond. The Australian
company in this example could issue the eurodollar bond in any country other than the U.S.

Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country
in which to offer their bond according to the country's regulatory constraints. They may also
denominate their eurobond in their preferred currency. Eurobonds are attractive to investors as
they have small par values and high liquidity.

http://www.investopedia.com/terms/e/eurobond.asp

A Eurobond is a contract for debt that records the obligations of a borrower to pay the
principal amount due plus a given interest rate on a specific set of dates. It is underwritten
by international investment firms and banks from several countries in Europe and is
issued in a currency other than that of the country where it is issued. It is an instrument of
trade that is intended to be purchased and sold through public offering on the stock
exchange during the period leading up to maturity. The bonds are popular because they
are tax free and virtually free of regulation by any government.

The Eurobond originated in 1963 with the Italian Autostrade network. Eurobonds are
traded in several stock exchanges. London and Luxembourg trade in these bonds the most
frequently. Tokyo, Singapore, the United States and many other nations trade Eurobonds
by issuing them in the denomination of their currency. Eurodollars, for example, would
denote Eurobonds based on the U.S. Dollar, and Euroyen would denote bonds issued to
be paid in Japanese currency.

• The bonds are popular because they are tax free and virtually free of
regulation by any government. The Eurobond originated in 1963 with the
Italian Autostrade network. Eurobonds are traded in several stock
exchanges.
• Euroclear was originally founded by the Belgian office of the New York-
based Morgan Guaranty trust company in 1968. It was set up to make the
Eurobond market run more smoothly, given the inevitable administrative
issues of so much cross-border investment.

http://www.wisegeek.com/what-is-a-eurobond.htm

in defence of Eurobonds:
When Luxembourg Prime Minister Jean-Claude Juncker and Italian Finance Minister
Giulio Tremonti proposed the creation of common “eurobonds” just prior to the
December 2010 European Council, their suggestion received a frosty reception.
Opponents of the proposal denounced the idea as an attempt to introduce a transfer union
– moving money from one group of countries to another – through the back door. Not
only would such a common bond facility raise interest rates on responsible borrowers, the
argument ran, but it would also make it easier for less responsible governments to spend
their way into trouble.
What the situation requires, opponents of the eurobond concluded, is more fiscal
discipline supported by a permanent facility for crisis management. Moreover, such a
facility should support the stability of the European financial system, leaving individual
governments to clean up the messes they make on their own.
This criticism of the eurobond has a broad resonance with voters wary of footing the bill
for other countries’ financial mistakes. As an intuitive proposition, what could be worse
than underwriting another country’s public debt? Yet such criticism (and such intuition)
ignores crucial features of the actual proposal and so misses the point.
A eurobond facility like the one proposed by Juncker and Tremonti would ensure that
responsible borrowers always pay the lowest possible rate of interest while creating
powerful market incentives to curb excessive borrowing. More important, it would shore
up the stability of the European banking system while at the same time forcing private-
sector investors to set bond prices that are more in line with attendant risks.
In this way, a eurobond would better protect taxpayers from having to support yet another
major bailout. And should governments insist on behaving irresponsibly, a common
eurobond would eliminate any systemic justification for other countries – or the European
Central Bank (ECB) – to step in.
The advantages of a eurobond of this kind would stem from three features: conditional
participation, limited drawing rights, and senior status. Moreover, each of these could be
fine-tuned to make the effects of a eurobond stronger or weaker.
Start with the notion of conditional participation. Countries would not have a right to
issue common eurobonds any more than they have a right to join the euro. Hence
participation would be subject to qualification – with criteria like those that firms face
when listing on the stock exchange or issuing corporate bonds.
Countries would be required to meet rigid accounting standards that would ensure a
higher level of transparency and they would have to accept more intrusive oversight from
the European Union’s accounting watchdog, Eurostat. Of course, governments could
resist this intrusion. But then they would give up the advantages of issuing eurobonds
either as a first instance or in refinancing existing debt.
The limited drawing rights would ensure that borrowing was not excessive. Juncker and
Tremonti proposed a limit is of 40 percent of gross domestic product (GDP). Other
proposals use the Maastricht Treaty’s public debt ceiling of 60 percent of GDP.
Whatever the constraint, the implication is the same. Borrowing below the limit would
take place cheaply in eurobonds. Borrowing above the limit would require states to issue
more costly national obligations. This would create an incentive to limit borrowing in the
marketplace, where excessive debt would be increasingly expensive to finance.
The senior status of eurobonds over strictly national obligations would mean that, in the
event of a crisis, the eurobonds would always be paid off first. This preference given to
the eurobonds would reinforce the incentives to rein in government borrowing through
three subtle yet discrete effects.
The first effect is transparency. At the moment, all of a country’s debt is much the same.
Hence when Greece experienced a crisis in its bond market, all investors in Greek bonds
were equally affected.
But if Greece had issued a mix of eurobonds and national obligations, only those
investors exposed to national obligations would have been under duress. More important,
those investors would have known the higher risks they were taking well before the crisis
occurred – giving them the opportunity to price in that risk before the fact.
A second effect operates through bank balance sheets. Currently banks use government
bonds as collateral to borrow cash from the European System of Central Banks – the
national central banks that are part of the eurozone. In normal times, this means that the
market for sovereign debts is very deep and government bond prices reflect that fact.
Once sovereign debt markets come under stress, however, the market suddenly dries up.
Banks are reluctant to sell what they hold, for fear of taking the write-down on those
assets, and they are also reluctant to buy more bonds and so increase their exposure.
Prices in government bond markets suddenly become very volatile as a result.
This explains why the ECB took the decision to begin making purchases in sovereign
debt markets – to dampen those volatile price movements. It also explains why the ECB
had to accept Greek bonds as collateral irrespective of their risk rating – otherwise it
would have been cutting off access to liquidity (meaning money) for Greek banks. A
eurobond would resolve both dilemmas by creating a separate category of assets for use
as collateral with central banks.
Moreover, the same assets would be used by all banks across the eurozone. Not only
would eurobond markets be less vulnerable to distress, but the eurobonds themselves
would have greater liquidity (they could be more easily converted into money) than any
European sovereign debt instrument currently in existence. The cost of borrowing in
eurobonds would be comparatively lower as a result.
The third effect of giving repayment preference (or seniority) to eurobonds is that it
would limit the systemic implications of sovereign debt restructuring. Should a
government need to restructure its obligations, it would put all the cost of that exercise
onto the strictly national part of its debt.
However, since private investors would know of that possibility from the start, either
they, their creditors or their regulators would build their exposure to such obligations into
their models for value at risk. Meanwhile, the banking system as a whole would have no
reason to overexpose itself to risky sovereign debt through the process of routine treasury
operations as central banking collateral. Finally, there would be no reason for the ECB to
relax its collateral rules or to buy government obligations in secondary markets.
A eurobond with conditional participation, limited drawing rights and senior status would
be anything but a blank cheque. On the contrary, it would be a powerful instrument for
restructuring incentives in the market. Governments would save money by opening their
accounts and reining in their spending; they would pay extra for borrowing that is
excessive; and their creditors would have to accept the consequences of any risks.
Moreover, these incentives would operate without any necessary political deliberation.
The redesigned stability and growth pact, intended to instill fiscal discipline on eurozone
countries, would still require a decision by the EU Council in order to sanction a
profligate member state; under a eurobond those sanctions would be automatic. The pact
also has lengthy procedures for encouraging action; under the eurobond regime like the
one described here, the encouragement would be immediate and continuous.
Opponents of the Juncker-Tremonti proposal should look more closely at the advantages
such an arrangement would offer. It would create a deeper and more liquid market where
responsible borrowing is amply rewarded through low interest rates. It would make it
unnecessary for the ECB to weaken its balance sheet or to intervene directly in the
marketplace. And it would prevent sovereign debt restructuring from triggering a pan-
European banking crisis.
These advantages are going to be hard to sell to voters – both in Germany and elsewhere
– who are intuitively averse to the idea of having common bonds or fiscal instruments.
Nevertheless, it is time for Europe’s leaders to explain to their electorates why the proposed

eurobond is in everyone’s best interest. European integration has often lurched forward in

times of crisis and the EU has emerged much stronger as a result. The present crisis should

not be any different

http://www.esharp.eu/issue/2011-2/In-defence-of-Eurobonds