Bonds #12: Global Bonds and Yankees

Although Eurobonds seem daunting, (reviewed in previous article) there are ways to take part in international investing with more confidence.

Sure, you can buy Eurobonds without currency risk if you stick to Eurodollar investing. You can eliminate political risk by limiting investments to the offshore branches of U.S. corporations or banks, or limit it by sticking to strong and stable industrialized nations such as Canada, the United Kingdom or Germany.

But, if you want the security of knowing that the bond issue is registered with the SEC, then you must look to Global or Yankee bonds.

So, what is a Global bond?

These bonds are issued in a number of different countries simultaneously. In each country they are issued in the country’s own currency. In the U.S. then, they are issued in dollars.

They are registered with the SEC. Since they have to meet certain criteria and standards, this gives investors extra peace of mind.

S&P and Moody’s Investor Service gives them credit ratings.

Who issues Global bonds?

U.S. corporations, such as Ford Motor Company, or foreign companies, like Daimler Chrysler can issue global bonds. Both of these companies have single-A credit ratings.

Foreign banks, like ABN-Amro in the Netherlands is an issuer of global bonds, and enjoys a AA- rating.

Also in this market are foreign countries and provinces, such as Ontario, which has a AA- credit rating.

So, what is a Yankee bond?

A Yankee bond is always issued by a foreign entity, while a global issue may have a US or foreign issuer.

Many types of entities issue Yankee bonds:

foreign banks

foreign companies

foreign countries, provinces or large cities.

These foreign borrowers bring out a specific Yankee issue only in the US; there is no simultaneous issuance in several countries. A domestic syndicate underwrites the Yankee.

Both Yankees and Global bonds are:

listed and trade in our domestic market.

issued in the U.S. in dollars.

registered with the SEC.

rated for credit worthiness by Moody’s or Standard & Poor’s.

What are the advantages of buying Global or Yankee bonds?

If you are considering buying individual bonds, Global and Yankee bonds have much the same comfort level as US corporate bonds if you minimize political risk by focusing on stable, industrialized countries.

Global issues, because of their large size, often have excellent liquidity.

They expand your universe of possible names to buy, thus adding diversity to your bond selections.