Yankee Bond
A Yankee Bond is a bond issued by a foreign entity, such as a bank or company, that is issued and traded in the United States and denominated in U.S. dollars.[1] For instance, Company ABC is headquartered in France. ABC issues dollar bonds in the United States, the bonds are Yankee bonds. Yankee bonds are normally issued in tranches, a debt structure that divides the investment into portions. Typically each portion has a different level of risk, interest rates, and maturities. Investors buy Yankee bonds to access overseas firms. Yankee bonds are like other bonds. The borrower pays interest and principal.[2] Yankee Bonds are administered by the Securities Act of 1933.[3] Issuers register Yankee Bonds with the Securities and Exchange Commission (SEC) before offering them for sale.
Risk
[edit]Because they are dollar bonds, investors avoid price fluctuations created by exchange rate changes. Instead, the issuer takes on exchange risks. If a foreign company faces domestic interest rates that are higher than the comparable bond rates in the United States, companies experience lower costs.[4]
According to Bell (2011), higher credit risks imply higher yields.[5] Yankee Bonds frequently offer yields higher than the yields available on comparable, or even lower-rated bond issues from U.S. issuers.
Reverse Yankee Bond
[edit]In 2003, Reverse Yankee Bonds emerged. They are mostly of a higher grade and are issued by a U.S. company outside the U.S., and denominated in a currency other than the dollar. This bond is governed by Securities Act of 1933, and must be registered with the SEC.
U.S. companies issued €45 billion of euro-denominated bonds in the first seven months of 2015 by taking the advantage of low pricing relative to dollars and Europe’s increasing accessibility to international borrowers.[6][7] Globalisation and currency volatility support this market, in part as a diversification move.[8] US bonds yields were well over those in the Euro zone.[9] U.S. backers represented 23% of all euro-designated bond issues in 2016.[citation needed]
See also
[edit]References
[edit]- ^ "Yankee Certificate Of Deposit". Investopedia.com. Retrieved 2017-05-03.
- ^ "Yankee Bonds Definition & Example". Investing Answers. Retrieved 2017-05-03.
- ^ Coles, M. H. (1981). Foreign Companies Raising Capital in the United States. Journal of Comparative Corporate Law and Securities Regulation 3, 300-319.
- ^ Miller, D. P., & Puthenpurackal, J. J. (2001, January 6). The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds. Journal of Financial Intermediation, 455-485.
- ^ Claes Bell (2011-08-17). "Yankee Bonds - Is the Return Worth the Risk?". Bankrate.com. Retrieved 2017-05-03.
- ^ Lloyd, D. (2015). 'Reverse Yankees': a home run for US issuers? An M&G Investments Fixed Income talking point.
- ^ Jackson, G. (2015, November 19). Reverse Yankees dominate euro bond markets. Financial Times.
- ^ "What is a Reverse Yankee Bond?". Morningstar.co.uk. 2017-02-21. Retrieved 2017-05-03.
- ^ Merkle, M. (2016, March 6). Reverse Yankee Bonds and the New EU Market Abuse Regime. Lexis Practice Advisor Journal.