《债券市场：分析与策略（第七版）》Ch09

Chapter9

Non-U.S.Bonds

9-1Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallLearningObjectivesAfterreadingthischapter,youwillunderstandthereasonsfortheglobalizationoffinancialmarketstheclassificationofglobalfinancialmarketswhattheforeignbondmarketiswhataglobalbondistheforeignexchangeriskexposureofaninvestorwhoinvestsinnondollar-denominatedbondswhataEurobondisandthedifferenttypesofEurobondstructurestheclassificationoftheglobalbondmarketintermsoftradingblocs9-2Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallLearningObjectives(continued)Afterreadingthischapter,youwillunderstandtheeurogovernmentbondmarketthemethodsofdistributionofnewgovernmentbondstheissuanceoflinkersbysovereignissuersthemotivationforinvestinginnondollarbondsfactorsconsideredintheratingofsovereignbondshowtocompareyieldsonU.S.bondsandEurobondsthePfandbriefemarketemergingmarketbonds9-3Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallClassificationofGlobalBondMarketsTheglobalbondmarketcanbeclassifiedintotwomarkets:aninternalbondmarket

andanexternalbondmarket.Theinternalbondmarket(ornationalbondmarket)canbedecomposedintotwoparts:thedomesticbondmarketiswhereissuersdomiciledinthecountryissuebondsandwherethosebondsaresubsequentlytraded.theforeignbondmarketofacountryiswherebondsofissuersnotdomiciledinthecountryareissuedandtraded.Exhibit9-1(seeOverhead9-5)providesaschematicpresentationoftheglobalclassificationsystem.9-4Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallExhibit9-1

ClassificationofGlobalFinancialMarketsInternalMarket(alsocallednationalmarket)DomesticMarketExternalMarket(alsocalledinternationalmarket,offshoremarket,andEuromarket)ForeignMarket9-5Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallClassificationofGlobal

BondMarkets

(continued)IntheUnitedStatestheforeignbondmarketisthemarketwherebondsareissuedbynon-U.S.entitiesandthensubsequentlytraded.BondstradedintheU.S.foreignbondmarketarenicknamedYankeebonds.Regulatoryauthoritiesinthecountrywherethebondisissuedimposecertainrulesgoverningtheissuanceofforeignbonds.9-6Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallClassificationofGlobal

BondMarkets

(continued)Theexternalbondmarket,alsocalledtheinternationalbondmarket,includesbondswiththefollowingdistinguishingfeatures:theyareunderwrittenbyaninternationalsyndicateatissuancetheyareofferedsimultaneouslytoinvestorsinanumberofcountriestheyareissuedoutsidethejurisdictionofanysinglecountrytheyareinunregisteredform.TheexternalbondmarketismorepopularlycalledtheEurobondmarket.Aglobalbondisonethatisissuedsimultaneouslyinseveralbondmarketsthroughouttheworld.9-7Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallClassificationofGlobal

BondMarkets

(continued)Anotherwaytoclassifytheworld’sbondmarketisintermsoftradingblocs.Thetradingblocsusedbypractitionersforthisclassificationaredollarbloc,Europeanbloc,Japan,andemergingmarkets.ThedollarblocincludestheUnitedStates,Canada,Australia,andNewZealand.Thetradingblocconstructisusefulbecauseeachblochasabenchmarkmarketthatgreatlyinfluencespricemovementsintheothermarkets.9-8Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallForeignExchangeRiskandBondReturnsThereturntoU.S.investorsfrominvestmentsinnon-U.S.bondsthataredenominatedinaforeigncurrencyconsistsoftwocomponents:thereturnonthesecuritymeasuredinthecurrencyinwhichthebondisdenominated(calledlocalcurrencyreturn),whichresultsfromcouponpayments,reinvestmentincome,andcapitalgains/losseschangesintheforeignexchangerate9-9Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallForeignExchangeRiskandBondReturns(continue)Anexchangerateistheamountofonecurrencythatcanbeexchangedforanothercurrency,orthepriceofonecurrencyintermsofanothercurrency.Sincetheearly1970s,exchangeratesbetweencurrencieshavebeenfreetofloat,withmarketforcesdeterminingtherelativevalueofacurrency.Whenacurrencydeclinesinvaluerelativetoanothercurrency,itissaidtohavedepreciated

relativetotheothercurrency.Alternatively,thisisthesameassayingthattheothercurrencyhasappreciated.9-10Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallForeignExchangeRiskandBondReturns(continue)Iftheforeigncurrencydepreciates(declinesinvalue)relativetotheU.S.dollar,thedollarvalueofthecashflowswillbeproportionatelyless.Thisriskisreferredtoasforeignexchangerisk.Thisriskcanbehedgedwithforeignexchangespot,forwards,futures,oroptionsinstruments(althoughthereisacostofhedging).SeveralreasonshavebeenofferedforwhyU.S.investorsshouldallocateaportionoftheirfixedincomeportfoliotonondollarbonds.Thepartylineisthatdiversifyingbondinvestmentsacrosscountries—particularlywiththecurrencyhedged—mayprovidediversificationresultinginareductioninrisk.9-11Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallEurobondMarketTheEurobondmarketisdividedintosectorsdependingonthecurrencyinwhichtheissueisdenominated.Forexample,whenEurobondsaredenominatedinU.S.dollars,theyarereferredtoasEurodollarbonds.EurobondsdenominatedinJapaneseyenarecalledEuroyenbonds.AlthoughEurobondsaretypicallyregisteredonanationalstockexchange,themostcommonbeingtheLuxembourg,London,orZurichexchanges,thebulkofalltradingisintheover-the-countermarket.9-12Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallEurobondMarket(continued)Issuersofforeignbondsincludenationalgovernmentsandtheirsubdivisions,corporations(financialandnonfinancial),andsupranationals.Asupranationalisanentitythatisformedbytwoormorecentralgovernmentsthroughinternationaltreaties.Thepurposeforcreatingasupranationalistopromoteeconomicdevelopmentforthemembercountries.IntheEurobondmarket,indicationsfortradesareinitiallyexpressedonaspreadbasis.IntheU.S.market,thespreadisrelativetotheU.S.Treasuryyieldcurve.9-13Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallEurobondMarket(continued)CorporateBondsandCovenantsIntheEurobondmarket,thereisadebateregardingtherelativelyweakprotectionaffordedbycovenants.ThechiefreasonforthisisthatinvestorsincorporateEurobondsaregeographicallydiverse.Asaresult,itmakesitdifficultforpotentialbondinvestorstoagreeonwhatformofcovenantsoffertrueprotection.Forinvestment-gradecorporateissuesintheEurobondmarket,documentationissomewhatstandardized.9-14Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallCorporateBondsandCovenantsThereisawidevarietyoffloating-rateEurobondnotes.Thecouponrateonafloating-ratenoteissomestatedmarginovertheLondoninterbankofferedrate(LIBOR),thebidonLIBOR(referredtoasLIBID),orthearithmeticaverageofLIBORandLIBID(referredtoasLIMEAN).Thesizeofthespreadreflectstheperceivedcreditriskoftheissuer,marginsavailableinthesyndicatedloanmarket,andtheliquidityoftheissue.Typicalresetperiodsforthecouponrateareeithereverysixmonthsoreveryquarter,withtheratetiedtosix-monthorthree-monthLIBOR,respectively;thatis,thelengthoftheresetperiodandthematurityoftheindexusedtoestablishtheratefortheperiodarematched.EurobondMarket(continued)9-15Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallSecuritiesIssuedintheEurobondMarketTheEurobondmarkethasbeencharacterizedbynewandinnovativebondstructurestoaccommodateparticularneedsofissuersandinvestors.Thereisthe“plainvanilla,”fixed-ratecouponbonds,referredtoasEurostraights.Becausetheseareissuedonanunsecuredbasis,theyareusuallyissuedbyhigh-qualityentities.Couponpaymentsaremadeannually,ratherthansemiannually,becauseofthehighercostofdistributinginteresttogeographicallydispersedbondholders.Therearealsozero-couponbondissuesanddeferred-couponissues.EurobondMarket(continued)9-16Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallEurobondMarket(continued)SecuritiesIssuedintheEurobondMarketAfloating-ratenoteissuewilleitherhaveastatedmaturitydateoritmaybeaperpetual

issue(i.e.,withnostatedmaturitydate).Thereareissuesthatpaycouponinterestinonecurrencybutpaytheprincipalinadifferentcurrency.Suchissuesarecalleddual-currencyissues.Thereisawidearrayofbondswithwarrants:equitywarrants,debtwarrants,andcurrencywarrants.Anequitywarrantpermitsthewarrantownertobuythecommonstockoftheissuerataspecifiedprice.Adebtwarrantentitlesthewarrantownertobuyadditionalbondsfromtheissueratthesamepriceandyieldasthehostbond.Acurrencywarrantallowsthewarrantownertoexchangeonecurrencyforanotheratasetprice(i.e.,afixedexchangerate).9-17Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallEurobondMarket(continued)ComparingYieldsonU.S.BondsandEurodollarBondsBecauseEurodollarbondspayannuallyratherthansemiannually,anadjustmentisrequiredtomakeadirectcomparisonbetweentheyieldtomaturityonaU.S.fixedratebondandthatonaEurodollarfixed-ratebond.GiventheyieldtomaturityonaEurodollarfixed-ratebond,itsbond-equivalentyieldiscomputedasfollows:bond-equivalentyieldofEurodollarbond=2[(1+yieldtomaturityonEurodollarbond)1/2–1].Toconvertthebond-equivalentyieldofaU.S.bondissuetoanannual-paybasissothatitcanbecomparedtotheyieldtomaturityofaEurodollarbond,thefollowingformulacanbeused:Theyieldtomaturityonanannual-paybasiswouldbe:[1+(yieldtomaturityonbond-equivalentbasis/2)]2–1.Theyieldtomaturityonanannualbasisisalwaysgreaterthantheyieldtomaturityonabond-equivalentbasis.

9-18Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarketsTheinstitutionalsettingsforgovernmentbondmarketsthroughouttheworldvaryconsiderably,andthesevariationsmayaffectliquidityandthetacticsofinvestmentstrategies.Forexample,inthegovernmentbondmarketdifferentprimarymarketissuancepracticesmayaffecttheliquidityandthepricebehaviorofspecificgovernmentbondsinacountry.Thetwolargestnon-U.S.governmentbondmarketsarethoseinJapanandGermany.Japanesegovernmentsecurities,referredtoasJGBs,includemedium-termbondsandlong-datedbonds.TheGermangovernmentissuesbonds(calledBunds)withmaturitiesfrom8-30yearsandnotes,Bundesobligationen

(Bobls),whichhaveamaturityoffiveyears.

9-19Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)InJanuary1999,thestructureofthemarketchangedwiththestartoftheEuropeanMonetaryUnion(EMU).TheEMU,combinedwiththedeclineintheU.S.Treasuryissuanceofsecurities,hasresultedintheEurogovernmentbondmarketbecomingthelargestgovernmentbondmarketintheworldintermsofsizeandnumberofissues.WithintheEurobondmarket,thegovernmentbondsectorrepresentshalfofthemarketofEuro-denominatedbonds,followedbytheGermanPfandbriefemarket.WhilemanyEurogovernmentbondscanbestripped,thestrippedsecuritiesarenotasliquidasthatofU.S.Treasurystrips.

9-20Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)MethodsofDistributionofNewGovernmentSecuritiesTherearefourmethodsthathavebeenusedindistributingnewsecuritiesofcentralgovernments:theregularcalendarauction/Dutchstylesystemtheregularcalendarauction/minimum-priceofferingtheadhocauctionsystemthetapsystemIntheregularcalendarauction/Dutchstyleauctionsystem,thereisaregularcalendarauctionandwinningbiddersareallocatedsecuritiesattheyield(price)theybid.Thisisamultiple-priceauctionandtheU.S.DepartmentoftheTreasurycurrentlyusesthismethodwhenissuingallU.S.Treasurysecuritiesexceptthetwo-yearandfive-yearnotes.

9-21Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)MethodsofDistributionofNewGovernmentSecuritiesIntheregularcalendarauction/minimum-priceofferingsystem,thereisaregularcalendarofoffering.Theprice(yield)atwhichwinningbiddersareawardedthesecuritiesisdifferentfromtheDutchstyleauction.Ratherthanawardingawinningbidderattheyield(price)theybid,allwinningbiddersareawardedsecuritiesatthehighestyieldacceptedbythegovernment(i.e.,thestop-outyield).

9-22Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallCopyright©2009PearsonEducation,Inc.PublishingasPrenticeHall9-23Non-U.S.GovernmentBondMarkets

(continued)MethodsofDistributionofNewGovernmentSecuritiesIntheadhocauctionsystem,governmentsannounceauctionswhenprevailingmarketconditionsappearfavorable.Aregularcalendarauctionintroducesgreatermarketvolatilitythananadhocauctiondoesbecauseyieldstendtoriseastheannouncedauctiondateapproachesandthenfallafterward.Inatapsystemadditionalbondsofapreviouslyoutstandingbondissueareauctioned.Thegovernmentannouncesperiodicallythatitisaddingthisnewsupply.

Non-U.S.GovernmentBondMarkets

(continued)SovereignBondRatingsSovereigndebtistheobligationofacountry’scentralgovernment.WhereasU.S.governmentdebtisnotratedbyanynationallyrecognizedstatisticalratingorganization,thedebtofothernationalgovernmentsisrated.ThetwogeneralcategoriesusedbyStandard&Poor’sinderivingtheirratingsareeconomicriskandpoliticalrisk.Economicriskisanassessmentoftheabilityofagovernmenttosatisfyitsobligations.Politicalriskisanassessmentofthewillingnessofagovernmenttosatisfyitsobligations.

9-24Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)SovereignBondRatingsTherearetwosovereigndebtratingsassignedbyratingagencies:alocalcurrencydebtratingandaforeigncurrencydebtrating.Thereasonfordistinguishingbetweenlocaldebtratingsandforeigncurrencydebtratingsisthathistorically,thedefaultfrequencydiffersbythecurrencydenominationofthedebt.Specifically,defaultshavebeengreateronforeigncurrency-denominateddebt.Thereasonforthedifferenceindefaultratesforlocalcurrencydebtandforeigncurrencydebtisthatifagovernmentiswillingtoraisetaxesandcontrolitsdomesticfinancialsystem,itcangeneratesufficientlocalcurrencytomeetitslocalcurrencydebtobligation.

9-25Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)SovereignBondRatingsInassessingthecreditqualityoflocalcurrencydebt,forexample,S&Pemphasizesdomesticgovernmentpoliciesthatfosterorimpedetimelydebtservice.ThekeyfactorslookedatbyS&Pare:stabilityofpoliticalinstitutionsanddegreeofpopularparticipationinthepoliticalprocesseconomicsystemandstructurelivingstandardsanddegreeofsocialandeconomiccohesionfiscalpolicyandbudgetaryflexibilitypublicdebtburdenanddebtservicetrackrecord;and,monetarypolicyandinflationpressures.However,thesinglemostimportantleadingindicatoraccordingtoS&Pistherateofinflation.

9-26Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallNon-U.S.GovernmentBondMarkets

(continued)SovereignBondRatingsForforeigncurrencydebt,creditanalysisbyS&Pfocusesontheinteractionofdomesticandforeigngovernmentpolicies.S&Panalyzesacountry’sbalanceofpaymentsandthestructureofitsexternalbalancesheet.Theareasofanalysiswithrespecttoitsexternalbalancesheetarethenetpublicdebt,totalnetexternaldebt,andnetexternalliabilities.Exhibit9-3showshowratingsforacountrycanchangeduringatimeoffinancialcrisis.(SeetruncatedversionofExhibit9-3inOverhead9-28.)

9-27Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallExhibit9-3

RatingsforIndonesia,Thailand,andSouthKoreaDuringtheAsianFinancialCrisis

(InformationforThailandandSouthKoreannotshowonoverhead.)IndonesiaMoody’sStandardDateRatingChangeDateRatingChange25/6/97Baa3—25/6/97BBB—27/12/97Bal-110/10/97BBB--19/1/98B2-531/12/97BB+-29/1/98BB-327/1/98B-69-28Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallTheEuropeanCoveredBondMarketOneofthelargestsectorsoftheEuropeanmarketisthecoveredbondsmarket.Coveredbondsareissuedbybanks.Thecollateralforcoveredbondscanbeoneofthebelowloans:residentialmortgageloanscommercialmortgageloanspublicsectorloans.Theyarereferredtoas“coveredbonds”becausethepoolofloansthatisthecollateralisreferredtoasthe“coverpool.”

9-29Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallTheEuropeanCoveredBondMarket

(continued)Investorsincoveredbondshavetwoclaims.Thefirstisaclaimonthecoverpool.Atissuance,thereisnolegalseparationofthecoverpoolfromtheassetsoftheissuingbank.Thesecondclaimisagainsttheissuingbank.Becausethecoveredpoolincludeshigh-qualitymortgageloansandisissuedbystrongbanks,coveredbondsareviewedashighlysecurebonds,typicallyreceivingatripleAordoubleAcreditrating.Coveredbondscanbeissuedinanycurrency.

9-30Copyright©2010PearsonEducation,Inc.PublishingasPrenticeHallTheEuropeanCoveredBondMarket

(continued)Thedifferencebetweenthesesecuritiescreatedfromasecuritizationisfourfold.Atissuance,thebankthatoriginatedtheloanswillsellapoolofloanstoaspecialpurposevehicle(SPV).InvestorsinRMBS/CMBS/ABSdonothaverecoursetothebankthatsoldthepoolofloanstotheSPV.ForRMBS/CMBS/ABSbackedbyresidentialandcommercialmortgageloans,thegroupofloans,onceassembled,doesnotchange,whereascoveredbondsarenotstatic.Coveredbondstypicallyhaveasinglematurityda