If a Eurobond is denominated in US dollars, then it can be called a euro-dollar bond. If it is denominated in Chinese yuan, then this would be named euro-yuan bond.
The essence of Eurobonds is that a company can choose any country to issue bonds depending on its economic and regulatory environment (e.g., interest rates in the country, economic cycle, market sizes, etc.). What makes the bonds attractive among investors is a small notional amount of a bond (face value or par value), which means that the bond is relatively cheap to obtain.
Importantly, Eurobonds are highly liquid and can be converted into cash within one fiscal year. The categorization of Eurobonds is dependent on the currency in which the bonds were issued. If a US-based company decides to release Eurobonds in China in British pounds, then the bonds will be categorized as euro-pound bonds.
The primary reason for issuing Eurobonds is a need for foreign currency capital. Since the bonds are fixed-income securities; they usually offer a fixed interest rate to investors.
Benefits to Issuers
- Flexibility to choose a favorable country to originate bonds and currency
- A country choice with lower interest rates
- Avoidance of currency risk or forex risk by using Eurobonds
- Access to a huge range of bond maturity periods that can be chosen by the issuer
- International bond trade despite being issued in a certain country that broadens potential investor base
The main benefit to local investors in purchasing a Eurobond is that it provides exposure to foreign investments staying in the home country. It also gives a sense of diversification, spreading out the risks.
As mentioned previously, Eurobonds are pretty cheap, with a small face value and are highly liquid. If a Eurobond is denominated in a foreign currency and issued in a country with a strong economy (and currency), then the bond liquidity rises.
