Eurobond Market Research Articles

Sustainability of lending diversification of sub-Saharan African low-income countries

The momentum in sub-Saharan low-income countries is leading to diversifying their funding sources to cover large infrastructure expenditures. This situation meets the expectations of international investors who are still willing to explore new opportunities. Recent access to the Eurobond market by these new players has resulted in the growing substitution of traditional concessional loans by market ones in countries with low-debt portfolios. Thus, a new sustainability approach is required to include risk premiums and potentially versatile investor behaviors. First, we use a theoretical model to show that in a context of low international interest rates, debtor countries can continue to stabilize their level of debt either through budget deficit, if it remains below a given sustainability threshold, or through budget surplus in a downturn context (high-interest rates and spreads). Second, the versatile behavior of investors could be challenging. Third, global liquidity greatly influences the debt dynamics of SSA countries so it matters more for bond spreads than domestic factors. As our empirical study shows that the current debt situation of sub-Saharan African low-income countries increasingly involved in the Eurobond market remains under control. To avoid the worst-case scenario, strong institutions should be a priority, along with appropriate management tools and methods of debt monitoring to cope with all potential vulnerability caused by undesirable side effects of such unstable behaviors.

Constructing the Discount Function with Parsimonious Extended Nelson-Siegel Function: Evidence from Nigerian Eurobond

Nigeria currently carrying out economic reforms is under the surveillance of institutional investors. To construct the market discount function through its yield curve, we applied the extended functional Nelson-Siegel parsimonious function with time-decay parameters to the Eurobond data to employ flexibility of the model and estimate the time varying parameters. In order to present a deep investigation of the Euro-bond market by reason of time to maturity, our contribution is anchored on following objectives: (i) construct the discount function (ii) investigate the limiting behavior of the yield curves and (iii) predict the in-sample yield. The data presented involves the daily closing of the Nigerian Eurobond yield covering January to December 2021 and 2022. The data was fitted to the observed Nigerian Eurobond yield curve to model the discount function. The ordinary least square method is used for the analysis and the estimated parameters were used to compute the in-sample yield. Test of goodness of fit was conducted showing that the model fits in well to the observed data demonstrated by the model’s R-square adjusted through the predicted yields after obtaining the two decay factors. This paper has implications on life insurance products associated with minimum guaranteed benefit schemes for the insured. Based on the terms and conditions of the contract, the insured pays regular premium invested in debt instruments and receives benefit at death or at maturity of the policy depending on the market performance of the fund. There is a guaranteed benefit which the insured earns irrespective of the performance of the life fund. The insurer would then pay the guaranteed amount even if the benefit eventually drops below the guaranteed amount. Given the discount 𝛿(𝜏)and benefit∅, the present value of future death benefits is modeled as 𝑃𝑉𝐹𝐵 = ∅1𝛿(1) + ∅2𝛿(2) + ⋯ + ∅𝑇−1𝛿(𝑇 − 1) + ∅𝑇𝛿(𝑇).

Evolution of the ukrainian eurobond market

The Ukrainian Eurobond market will become a critically important source for raising funds in the post-war years. This requires a quantitative analytical study of the factors affecting this market, but such studies are practically non-existent today. The aim of the article is to design the periodization of the Ukrainian Eurobond market, reveal the regularities of its functioning and analyze the interrelation of the risk and return. There is an hypothesis, as: Eurobond return rate can be positively correlated with the systematic risk. Five main stages of development of the Ukrainian Eurobond market (including corporate issues) were found. The main factors were analyzed that influenced the volumes and the coupon rate at the placement of the 2001–2021 issues at each of the first four stages of market development. It is shown that the distribution of issuers of corporate Eurobonds by the total volume of issues is a classic distribution with the "fat tail" and the reason for this distribution were shown. Regression analy­sis methods were used to analyze the relation­ship between sovereign risk of Ukraine and coupon rate at the placement of the corporate Ukrainian Eurobonds. Two market "anomalous" in the Ukrainian Eurobond market were found out: periods with exceeding of average coupon rate at the placement of the government Ukrainian Eurobonds over the same rate of the corporate Ukrainian Eurobonds; decree­sing of the sovereign risk statistically accompa­nied with increasing of the average coupon rate at the placement of the corporate Ukrainian Euro­bonds. The first "anomaly" explained by the increased optimism of investors in the late 10s and early 20s. The second "anomaly" associated with the rapid expansion of the market and the attraction of relatively risky corporate issues. Using the example of "Voda­fone Ukraine" Eurobonds, the influence was analyzed of the introduction of martial law and restructuring events on prices and yield to maturity of the Ukrainian corporate Eurobonds in 2021–2023 years.

THE ROLE OF LOCAL LOANS AS A DEVELOPMENT TOOL OF TERRITORIAL COMMUNITIES

Purpose. The purpose of the article is to single out the key aspects of the formation and use of local loans by local self-government bodies in Ukraine, to propose effective approaches to the management of this tool for local self-government bodies based on the analysis and assessment of the use of local loans by local self-government bodies. Methodology of research. General scientific and special methods were used in the research process, in particular: dialectical, monographic, analysis and synthesis – to study the functioning of the local borrowing market in Ukraine; comparative analysis – to compare economic indicators in time and space; abstract and logical – during the formation of theoretical generalizations, assumptions, conclusions. Findings. The article outlines the relevance of the problem of local borrowing as an alternative source of financial resources of local self-government bodies in Ukraine. The essence and economic content of local borrowings and the peculiarities of their implementation in Ukraine are determined; the shortcomings of the functioning of the local borrowing market and legislative support are identified. The current state of development of the local borrowing market in Ukraine is studied. Features of the functioning of the municipal bond market in European countries are highlighted. The importance of credit resources for ensuring the economic development of local communities and the need to eliminate the causes of the identified problems were emphasized. Areas of improvement in the field of local borrowing are proposed, taking into account the experience of European countries. Originality. It is proposed to finalize the legislative framework for the procedure for issuing foreign local loan bonds. It is recommended to expand the possibility of issuing other types of local loan bonds, for example, those that will be secured by property or assets of local governments, in addition to objects that ensure the safety of citizens and the satisfaction of their basic needs, such an approach can contribute to increasing interest from investors. Practical value. Proposals substantiated by the results of the research can contribute to the exit of Ukrainian territorial communities to the Eurobond market, which will involve the creation of a positive image of the territory, the formation of its attractive "credit" history to ensure the stable development of the regions of Ukraine. Key words: local borrowing, credit, bonds, territorial community, budget.

ANALYSIS OF THE PARTICIPATION OF UZBEKISTAN IN THE EUROBOND MARKET AND THE EFFICIENCY OF USING THE FUNDS INVOLVED

The concept of this Eurobond and the participation of Uzbekistan in the Eurobond market, the effectiveness of the use of the funds involved and the impact on the economy of Uzbekistan are explained.

Determining The Country-Specific Variables Affecting The Market Value of Turkish Eurobonds: NARDL Approach

This study aims to determine the country-specific variables influencing the market value of eurobonds issued by the Republic of Turkey Ministry of Treasury and Finance. The study covers the period from January 2012 to June 2020. For the study, the 102-month time series are analysed with the NARDL model. Parallel to the model, independent variables are decomposed into positive and negative shocks and these components are added to the model. Thus, the existence of a significant asymmetric cointegration relationship is investigated. According to the findings, the negative and positive shocks of credit default swap in both the short and long term significantly affect the Turkish eurobond market value, but the negative shock has a greater impact. In addition, the negative shock of total international reserves in the short term and the negative shock of the current account in the long term significantly affect the Turkish eurobond market value.

CORPORATE AND SOVEREIGN FINANCING IN THE EUROBOND MARKET: SOME KEY ISSUES

In this article the author considers the previous importance of the Eurobond market for corporate and sovereign financing, corporate and sovereign Eurobonds issuing process, as well as costs and effects of corporate and sovereign financing in the Eurobond market. These four issues associated with corporate and sovereign financing in the Eurobond market are studied through exposing the relevant theoretical knowledge and results of empirical research. According to author’s findings, in developed countries the Eurobond market is more important for corporate than for sovereign financing. On the contrary, in developing countries the Eurobond market is more important for sovereign than for corporate financing. Most theoretical attitudes associated with the influence of different factors are grouped in three categories: issue characteristics, market factors and macroeconomic factors, as well as the influence of contagion on the cost of sovereign and corporate financing in the Eurobond market were empirically confirmed. Benefits of corporateandsovereignfinancingintheEurobondmarketare certainly large and risks can successfully be managed.

Legal Documentation of Eurobonds from Russian Issuers

The Eurobond market is one of the main sources of raising international finance for leading Russian corporations and financial institutions. I presented the general description of the structural parameters of Eurobonds, as well as the main phases of the issuing process. The focus of this article is on the documentation aspects of the Eurobond market, since preparing the legal documents is one of the key goals of the transaction execution process. An overview of the primary Eurobond documents is provided, including the Prospectus, the Mandate & Engagement Letters, the Trust deed, the issuing & Paying Agency Agreement, the deed of Covenant. The roles and functions of the involved parties (issuer, Arranger, dealers, Legal Counsels) and the documentation process of Eurobonds which I described in detail. Also, I presented a comparison of issuing Eurobonds utilising stand‑alone documentation or Euro Medium Term Note Programme. The purpose of setting up a programme is to enable Eurobonds to be issued quickly and efficiently and, by using one set of documentation, to reduce the amount of paperwork and management time for the issuer.

Eurobond Flotation by Russian Corporations and Finance Institutions

Eurobonds are one of the key instruments of international corporate financing. The article studies Eurobond market as a source of raising cash by Russian corporations and finance institutions. It provides structural parameters of Eurobonds and depicts types of securities available on debt market for Russian issuers (issues with one or several tranches, benchmark issues). The author analyzes results of Russian issuers’ flotation, including high activity on Eurobond market of exporting companies and successful flotation of ruble Eurobonds. The article studies transaction aspects of Eurobonds market: the role of principle participants of the deal (leading managers, global coordinators, book-runners) and key stages of the security flotation process (getting the credit rating, preparation of legal papers, syndication and marketing on market). It makes a comparative analysis of key instruments of raising finance by Russian borrowers on international markets of debt capital – Eurobonds and syndicated credits. These instruments both compete and supplement each other, which was proven by using the combination of Eurobonds and syndicated credits by leading borrowers. The article comes to the conclusion that combined use of these debt instruments for solving a wide range of finance problems is optimal for corporate capital structure and finance institutions.

Collateral affects return risk: evidence from the euro bond market

Covered bonds and senior bonds are prominent securities in the euro bond market. Senior bonds are unsecured, while covered bonds are secured—backed by collateral. Our results show that the presence of collateral reduces the total risk in individual bonds by more than 70%. Compared to diversified portfolios of senior bonds, diversified portfolios of covered bonds have a significantly lower level of systematic risk. However, the fraction of systematic risk to total risk is higher for covered bonds. By decomposing the variance of bond returns, we find that around 33% of the risk in senior bonds is systematic, versus 53% in covered bonds. Both types of bonds contain instrument-specific risk.

Collateral Affects Return Risk: Evidence From the Euro Bond Market

Covered bonds and senior bonds are important securities for fixed income investors. Senior bonds are unsecured, while covered bonds are secured and backed by collateral. Our results show that collateral reduces the total risk in individual bonds by more than 70%. Compared to diversified portfolios of senior bonds, diversified portfolios of covered bonds have a significantly lower level of systematic risk. However, the fraction of systematic risk to total risk is higher for covered bonds. By decomposing the variance of bond returns, we find that around 33% of the risk in senior bonds is systematic, versus 53% in covered bonds. Both types of bonds contain instrument specific risk.

Risk protection from risky collateral: Evidence from the euro bond market

Abstract This paper studies empirically how collateral protects the market value of defaultable bonds from changes in risk. We construct a measure of the risk protection from collateral, and estimate it under different economic conditions. Using yields from the euro bond market, we find that the risk protection from collateral is conditional, significantly stronger in both general and issuer-specific bad states. However, the collateral is risky, and a fall in the collateral value clearly lowers the risk protection. Consequently, the correlation between the bad state and the collateral value is crucial when assessing the risk reducing properties of collateral.

Impacto de la crisis en el mercado de eurobonos: ‘rating’ y nuevos emisores asiáticos

The financial crisis has led to significant changes in the international financial situation. Specifically, in the Eurobond market were decisive consequences on the behavior of investors and issuers. In this recessionary environment, the paper aims to analyze its impact on the Eurobond market, trying to clarify the role played by rating agencies in this web of risk. Also, add the increasingly important position of Asian countries, materialized in significant increases Eurobonds issued in yuan. Chinese entities, at the head of the relay, are beginning to replace European and American.

Changes in organizational patterns of the Eurobond market: an historical analysis

Purpose – Financial intermediaries have contributed to the growing complexity of transactions and to an emerging relational network within markets. This article considers the Eurobond market as an organization in which members adopt rationalities along with diversified and evolving courses of action. The purpose of this paper is to mobilize both historical analysis and organizational theories to show what history can bring to organizational theories using a specific financial market as a case study. Design/methodology/approach – The author used a methodology based on historical events and on a long-run analysis of practices. Professional sources, academic research and databases allow the author to follow an abductive approach. Observations set out of this double perspective are confronted with the conceptual frames of organizational theories. Findings – During the creation and organization stage, the Eurobond market adopts the pattern of a market organization. Then, it takes the pattern of a firm organization as defined by Coase and Alchian and Demsetz or it is a hybrid pattern as Williamson corpus is concerned. In its last stage of evolution, it reveals as a firm organization for all economic models of organizations. Originality/value – The confrontation of an historical methodology with the economic model of organization leads to the conclusion that the Eurobond market cannot be apprehended as an organization market anymore since it has become a firm organization. Traditional regulation of financial markets does not apply since a firm pattern cannot be controlled as a market one.

A Fiscal Union for the Euro: Some Lessons from History

The recent financial crisis starting in 2007–2009 is the longest and the deepest recession since the Great Depression of 1930. The crisis that originated in the US subprime mortgage markets spread and amplified through international financial markets and resulted in severe debt crises in several European countries. Events revealed that the European Union (EU) had insufficient means to halt the spiral of the European debt crisis. The aim of this study is to identify the characteristics of a robust common fiscal policy framework that could have alleviated the consequences of the recent crisis. This is done by using the political and fiscal history of five federal states: Argentina, Brazil, Canada, Germany, and the USA. Our study suggests that a fiscal union is necessary to avoid divergent fiscal policies and we identify five conditions crucial for it to function effectively: (i) a credible commitment to a no-bailout rule, (ii) a degree of revenue and expenditure independence reflecting the preferences of the voters, (iii) a well-functioning European system of transfers in times of distress, (iv) the creation of a euro bond market serviced by taxes collected by the EU government, (v) the ability to learn from and adapt to changing economic and political circumstances. (JEL codes: H10, H70, H73)

An Empirical Study on the Effects between the Euro Bond Market and the Federal Republic of Germany Stock Market Around the International Financial Crisis

An Empirical Study on the Effects between the Euro Bond Market and the Federal Republic of Germany Stock Market Around the International Financial Crisis

Has the US Bond Market Lost its Edge to the Eurobond Market?*

ABSTRACTThe growth of the European financial markets, together with the new, stricter regulations on the US financial markets, has spurred a debate over the competitiveness of the US financial markets. In this paper, we contribute to this debate by investigating the relative competitiveness of the US bond market over the last 10 years. In the early 1990s, the gross spread in the US bond market were significantly lower than in the Eurobond market. While this spread continued to decline in the US bond market, it declined at an even faster rate in the Eurobond market, to the point of eliminating the wide cost differential that existed between the two markets in the early 1990s. These findings are robust and suggest that the relative costs of bond underwriting declined in the Eurobond market. We also find that US firms are increasingly opting to issue their bonds in the Eurobond market, and that this relocation is partly driven by the decline in the relative gross spreads in the Eurobond market. This finding adds support to our conclusion that the cost of bond underwriting declined faster in the Eurobond market, reinforcing the view that the US bond market is facing a greater challenge from the Eurobond market.

Carrefour S.A

In August 2002, the French retail giant Carrefour S.A. is considering alternative currencies for raising ¬750 million in the Eurobond market. Carrefour's investment bankers believe that the bonds can be issued at 5.25% in euros, 5.375% in British pounds, 3.625% in Swiss francs, and 5.5% in U.S. dollars. Despite the high nominal coupon rate and the lack of any material business activity in the United Kingdom, the British-pound issue appears to provide the lowest cost of funds. This case is designed to introduce topics in international finance such as interest-rate parity, currency risk management, and the Eurobond market. Students are tasked with exploring why forward-currency exchange rates vary from spot rates and proposing a Eurobond financing strategy for Carrefour.

Financiamento empresarial brasileiro no mercado de dívida de longo prazo

This article analyzes and discusses the evolution of the corporate bond market and the importance of this market to the financing of Brazilian companies, and consequently to economical development in Brazil. To that end, a historical approach was used, describing the main facts of the Brazilian and global capital markets, and analyzing the importance of raising funds both in local debentures market in the international eurobond market. The article also presents, through a descriptive study, the current scenario of corporate Brazilian financing in local and international markets, and discusses the result achieved in the volume of fundraising in the last three years. The study shows that, in spite of considerable growth in the last few years, the Brazilian debt market is still modest compared to developed countries. The explanation for this

Has the U.S. Bond Market Lost its Edge to the Eurobond Market?

The growth of the European financial markets, together with the new, stricter regulations on the U.S. financial system, has spurred a debate about the competitiveness of the U.S. financial markets. In this paper, we compare underwriting costs in the U.S. bond market and the Eurobond market over the last ten years and investigate whether recent changes in the U.S. bond market's relative competitiveness have affected U.S. firms' choice of bond issuing market. Our results show that ten years ago, it was less expensive to issue in the U.S. bond market than in the Eurobond market and that underwriting costs have declined continuously in the U.S. market over the last decade. Importantly, we also find that these costs decreased at an even faster rate in the Eurobond market to the point of eliminating the competitive wedge of the U.S. bond market. These findings are robust to bond-, firm-, and underwriter-specific characteristics and do not appear to be driven by sample selection, as they hold when we consider a sample of issuers that is both constant over time and common to both markets. Finally, we find that U.S. firms are increasingly opting to issue their bonds in the Eurobond market instead of the U.S. market, and that this relocation toward the Eurobond market is partly caused by the decline in the relative competitiveness of the U.S. bond market.