What is a bond to another country?
An International Bond Investing is a way to invest in debt from a foreign company. For instance, an American international bond fund might buy Australian government bonds, Chinese business bonds, and other foreign government and corporate bonds.
Like any other bond, foreign bonds pay interest at set times and return the principal amount to bondholders when the bond matures.
Many mutual funds hold these bonds in the U.S. Some investors buy overseas bonds to diversify their portfolios and get a feel for investing in other countries.
How to Understand International Bonds
As the business world becomes more connected, companies find cheaper ways to get money from places other than their home country. Businesses and states don’t have to rely on investors in their markets to get the money they need. Instead, they can go to global investors and borrow money.
International bonds are one way for businesses to enter the international lending market.
Most foreign bonds are issued by countries within their borders and in their currency. At least from the point of view of an American investor, a foreign bond is one that a company or government issues in a currency other than the U.S. dollar.
Types of International Bond Investing Bonds for Other Countries
An investor in the United States will most likely be interested in a few main types of foreign bonds. Eurobonds, global bonds, and Brady bonds are some of them.
Bucket bonds
Eurobonds are released in a currency different from the company or other issuer’s home currency.
For instance, a Swiss company that wants to build a factory in Mexico could issue a bond with pesos as the value. The business can get Mexican pesos for the project without going through a Mexican bank. This is likely cheaper than borrowing money from a Mexican bank. Mexican buyers are getting a safe investment that doesn’t involve the risk of losing money when they exchange Swiss francs for pesos.
Things can get trickier. A French company might, for instance, put out a bond in Japan worth U.S. dollars instead of euros. This is also a Eurobond, or eurodollar bond, to be exact.
There are also Euroyen bonds, issued in Japanese yen, and Euroswiss bonds, issued in Swiss francs.
World Bonds
G-bonds are like Eurobonds but can be bought and sold in the country whose currency is used to value the bond.
For instance, a French company might issue a global bond in U.S. dollars and give it to investors in both Japan and the United States.
Bondsman Brady
In the United States, Brady bonds are called sovereign debt securities. They are backed by U.S. Treasury bonds and are priced in U.S. dollars. The Federal Reserve calls them an “emerging markets bond.” The United States made them to help developing countries with their heavy foreign loans.
The Nicholas Brady Bonds are part of a program started in 1989 and named after the Treasury Secretary at the time. They will help developing countries restructure their bills and become financially stable.
Some Brady bonds are not as good as investment-grade bonds.
What Are International Bond Investing and Foreign Bonds?
International and foreign bonds are not the same, even though the words are sometimes used to refer to the same thing.
They are given in one market and are paid for with that market’s currency. Still, a company issues them from a company that a U.S. company that does business in Canada might put out a bond in Canada worth Canadian dollars.
Foreign bonds often have cute names related to the currency or country where they were released. A Maple bond is what we’d call the bond in the above case. These are some other types of foreign bonds:
- Bonds for samurai (released in Japanese yen)
- U.S. dollar-denominated bonds are called “Yankee bonds.”
- The Matilda bonds were made in Australian dollars.
- Bonds for bulldogs that are sold in British pounds sterling
- Unique Things to Think About
Are world bonds and foreign bonds the same thing?
No. Foreign bonds are priced in the country’s currency where they are released, but the company that issues them is not based in that country. Investors who live in the country where the bonds are released will be the main ones buying them.
International bonds are made in one country and sold to people in other countries.
Are there bond funds that invest in bonds from other countries?
For those interested, there are a lot of international bond funds that buy foreign government and business debt. The Templeton Global Bond Fund (TPINX), the Fidelity Global Credit Fund (FGBFX), and the PIMCO Global Bond Fund Unhedged are a few of these funds.
Are there ETFs for international bonds that investors can buy?
Several exchange-traded funds (ETFs) invest in or focus on foreign bonds.
The iShares International Treasury Bond ETF (IGOV), the SPDR Bloomberg International Treasure Bond ETF (BWX), and the Invesco Total Return Bond ETF (GTO) are a few examples.
A warning: “high-yield bond” is sometimes just another name for “junk bond.” If you want to buy local or foreign bonds, make sure you know how risky they are and check their credit ratings.
Conclusion
- When a non-domestic company issues a debt obligation in its currency, this is called an international bond.
- There are different types of foreign bonds: government bonds and corporate ones.
- You can diversify your investments with international bonds, but there is a risk of currency loss.
