Euro BOBL are debt securities denominated in a currency other than the currency of the issuer, i.e. the country, or company that issued the securities. Such bonds may be traded on foreign stock exchanges, as well as on the markets of the issuer’s country. The principal difference is only in the currency of the issue, which is not limited to the euro. The prefix in the name remained, so to speak, historically.
The first Euro BOBL were issued in 1963 by the Italian freeway network Autostrade in American dollars to circumvent the Interest Equalization Tax introduced in the United States. In this way Europeans had access to U.S. capital, and Americans could invest in European securities in dollars without being subject to the tax. Investing in this financial instrument can be more profitable than buying stocks like Walt Disney.
But in fact, Euro BOBL may be issued in dollars, pounds, or any other currency. Companies become issuers of Euro bonds if they want to get investments in foreign currencies.
These securities share the basic characteristics of all bonds. They are debt securities with a predetermined maturity or perpetual. Usually their face value is not less than $1 thousand issuer; that is, the company that issued the paper pays coupons at predetermined dates in the currency Euro BOBL. Thus, by investing in Euro BOBL future, you can benefit not only from the increase in the price of the bond itself, and the coupon income, but also from the exchange rate difference.
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Double denomination is also possible – it means paying coupons in a currency different from both the country of the issuer and the currency of the bond itself. For example, a Russian investor buys a dollar-denominated Eurobond, but wants to receive a coupon in euros or pounds.
Euro Bonds are issued by an international underwriting syndicate, and companies or organizations with an international credit rating are admitted to the emission. The interest rate of coupons is directly dependent on this rating: the higher it is, the lower the interest will be. Since Euro BOBL futures – securities for international circulation, no one state has complete control over them. The International Securities Markets Association (ISMA) oversees the Eurobond market.
The underwriter is the party that issues bonds for the borrower. The underwriter manages the issuance and distribution of the securities and guarantees the issuer’s placement in the primary market – for a certain fee and under agreed terms. The underwriter may agree to buy all the securities of the issuing company and thus assume all the risks of unsold securities.
What are Euro BOBLs
This type of securities has different types. The main differences can be noted in the variants of income payment and in the methods and terms of maturity.
According to the yield options, there are distinguished:
- Euro bonds with a fixed rate. Interest on it is predetermined and is paid at intervals of one or two times a year. As a rule, such bonds are long-term;
- Bonds with a floating interest rate. The yield is linked to changes in the indicative financial instrument;
- Zero-coupon bonds. No payments are made on them. Thus, yield is obtained through speculation on the purchase and sale price;
- Capital Gains Bonds guarantee that the Euro BOBL future price at maturity will be higher than the face value and the offering price;
- Deep discount (discount) signals that the bond is sold at a lower price than the price at which it will be redeemed.
According to the terms of the loan, it is possible to note:
- short-term bonds – for a term of one year or less;
- medium-term – from one to ten years;
- long-term – more than ten years, can reach 40 years.
- As for the repayment date, there are Euro bonds with a single date, several dates, and a predetermined date for early redemption.
Euro BOBL price: how to buy?
For unqualified investors, there are several ways to invest in Euro BOBL:
- Buy Euro BOBL through a broker’s terminal or app;
- Invest in an ETF, which will include different types of Euro BOBL;
- buy a unit in a mutual fund consisting of Eurobonds.
Some Eurobond issues are only available to qualified investors, while a lot of others are available upon testing with a broker. Eurobonds allow the investor to earn not only on standard yield options, but also on exchange rate differences.
Euro BOBL price: how the profitability of Euro Bonds is formed
Euro BOBL differs from the standard ones, because in addition to standard yield options in the form of speculation on the purchase and sale price and earnings on coupons, it is possible to profit from the difference in currencies. By investing in Euro Bonds, you are lending in a foreign currency. Your profit is correlated with currency quotations in the market.
You can make money on Eurobonds:
- By selling at a higher price than you bought it;
- earning interest on the loan (coupons);
- Investing in a currency that will grow in the future relative to your home country’s currency.
As with other securities, in Eurobonds the possible income increases with the risks. Issuers may offer a coupon rate depending on their credit rating. The higher the credit rating a company has, that is, the more reliable it is, the lower the coupon on the bond will be. However, given the rise in the currency, you can invest in a reliable issuer and end up with a nice return in the long run.
With a low credit rating, companies offer a higher coupon rate. The correlation with maturity works the same way. The shorter the term, the lower the coupon interest. Conversely, long-term bonds guarantee you a higher yield percentage.