Eurodollar Bond

Adviser Tobias Lindegaard walks a client through three international bond labels: (1) a U.S.-dollar bond sold in the United States by a Swedish industrial company, (2) a U.S.-dollar-denominated bond issued and sold entirely OUTSIDE the United States, and (3) a yen-denominated bond issued in Japan by a U.S. company. In order, these are best described as:

1. A.A Samurai bond, a Yankee bond, and a Eurodollar bondSamurai describes a foreign issuer selling yen bonds in Japan, which is the third fact pattern, not the first.
2. B.A Eurodollar bond, a Yankee bond, and a Samurai bondThe first two labels are swapped. A foreign issuer selling into the U.S. market issues a Yankee bond.
3. C.A Yankee bond, a Samurai bond, and a EurobondThe second bond is denominated in dollars and sold outside the United States, which makes it a Eurodollar bond, not a Samurai bond.
4. D.A Yankee bond, a Eurodollar bond, and a Samurai bondCorrect. Foreign issuer selling dollars in the U.S. = Yankee; dollars outside the U.S. = Eurodollar; foreign issuer selling yen in Japan = Samurai.

Why: The naming convention keys off where the bond is sold and what currency it is denominated in. A foreign issuer selling dollar bonds inside the U.S. market issues a Yankee bond. A dollar-denominated bond issued and sold outside the United States is a Eurodollar bond (one variety of Eurobond). A foreign issuer selling yen-denominated bonds inside Japan issues a Samurai bond, the Japanese analogue of a Yankee.

A German manufacturer wants to raise United States dollars. Its bankers present two structures: first, a bond registered with the SEC, denominated in dollars, and sold to investors in the United States; second, a bond denominated in dollars but issued and sold to investors outside the United States. What are these two structures called?

1. A.The first is a Yankee bond and the second is a Eurodollar bond.Correct. Registered dollar bonds sold in the United States by a foreign issuer are Yankee bonds; dollar bonds sold offshore are Eurodollar bonds.
2. B.The first is a Eurodollar bond and the second is a Yankee bond.Wrong. This reverses the two definitions.
3. C.Both are Eurobonds, since the issuer is European.Wrong. The issuer's nationality does not determine the label; where the bond is sold and in what currency does.
4. D.The first is a Samurai bond and the second is a Brady bond.Wrong. A Samurai bond is yen-denominated and sold in Japan; Brady bonds were restructured sovereign debt of developing countries.

Why: The naming convention keys on where the bond is sold relative to the currency it is denominated in. A bond sold in a domestic market, in that market's currency, by a foreign issuer is named for the host country: a foreign issuer selling dollar bonds in the United States issues a Yankee bond, and the parallel yen instrument sold in Japan is a Samurai bond. A Eurodollar bond is dollar-denominated but issued and sold outside the United States, which is why it typically escapes SEC registration; the prefix Euro refers to the offshore market rather than to Europe or the euro currency.