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Eurobond

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A Eurobond is a debt instrument that’s denominated in a currency other than the home currency of the country or market in which it is issued. Eurobonds are important because they help organizations raise capital while having the flexibility to issue them in another currency.

Key takeaways

  • A Eurobond is a debt instrument that’s denominated in a currency other than the home currency of the country or market in which it is issued.
  • Eurobonds are important because they help organizations raise capital while having the flexibility to issue them in another currency.
  • Eurobond refers only to the fact the bond is issued outside of the borders of the currency’s home country; it doesn’t mean the bond was issued in Europe.

Based on European leaders’ proposals, a Eurobond would be a collective bond issued by the 17 member nations of the eurozone.

Since it consolidates the eurozone countries’ debt into a single bond, its credit rating would be substantially higher than that of the PIIGS nations but lower than Germany’s triple-A rating.

The creation of Eurobonds is still up for debate as more stable economies such as Germany are strongly opposed to the idea. However, other debt-ridden nations are hopeful that Eurobonds could be a longer-term solution to the eurozone debt crisis.

Understanding Eurobonds

The popularity of Eurobonds as a financing tool reflects their high degree of flexibility as they offer issuers the ability to choose the country of issuance based on the regulatory landscape, interest rates, and depth of the market. They are also attractive to investors because they usually have small par values or face values providing a low-cost investment. Eurobonds also have high liquidity, meaning they can be bought and sold easily.

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