Yankee Bonds
No, this post is not about the New York Yankees or Barry Bonds, despite the picture. This post is about a much more interesting topic, Yankee bonds.
Yankee bonds are dollar-denominated bonds issued in the United States by foreign corporations, banks, and governments.
Yankee bonds are registered with the SEC (Securities and Exchange Commission) and traded in the United States domestic market. Yankee bonds pay interest semi-annualy, and are rated by the the standard US rating agencies, S&P and Moody’s Investor Service.
Issuers of yankee bonds are mostly sovereign, or sovereign guaranteed issuers that are highly rated. Some corporations and financial institutions also issue yankee bonds. In addition, when yankee bonds are issued, the issuance is normally only in the US market. Foreign entities do not simultaneously issue yankee bonds in the foreign home country. Domestic underwriters are used during the yankee bonds issuance process.
Reasons for Issuing Yankee Bonds
1. The size of the United States bond market offers attractive opportunities for foreign entities wanting to raise large amounts of capital by issuing debt.
2. By issuing yankee bonds, foreign entities are able to capitalize on the benefits of the US bond market but remain somewhat shielded from the expensive regulation required for entities based in the United States.
3. Because yankee bonds are dollar-denominated, the foreign entities issuing the bonds receive a US dollar income stream. This can be useful for international trade and other business activities.
4. Foreign entities issue yankee bonds to take advantage of the US interest rate environment and currency strength. For example, if US interest rates are low, issuance of yankee bonds will increase as foreign entitles attempt to take advantage of lower cost debt financing.
If the US currency is appreciating, foreign entities will issue more yankee bonds to take advantage of the US currency’s increasing purchase power relative to the currency of the foreign entities nation.
Leave your response!