What are Eurobonds and is it worth investing in them

What are Eurobonds

Eurobonds, or Eurobonds, are bonds denominated in a currency that is not national for the issuer's country of origin.

Let's analyze this definition in order.

Bonds are debt securities. By purchasing them, you are, as it were, lending money to the seller. Upon the expiration of the agreed period, he undertakes to return the investment to you, and as a reward, he periodically pays a percentage of the invested amount - the so-called coupon yield.

A bond can be issued by an enterprise, state or municipality. All of them in this case are called by one word - the issuer.

For an ordinary bond to become a Eurobond, it must be issued in a foreign currency for the issuer. Not necessarily in euros, although it could be that way too.

The term originated in the middle of the twentieth century, when European companies began to offer to buy their bonds not for the currency of the country where the company is located, but for the US dollar. Over time, it began to call any bonds that are not denominated in the national currency of the issuer. Nevertheless, Europe still retains the status of a Eurobond trading center.

Vitaly Kirpichev Development Director in Russia TradingView, Inc.

In other words, if a Spanish company issues bonds in euros, then they will not be Eurobonds, because the euro is the currency of Spain. If a US company places securities in euros on the stock exchange, they will be considered Eurobonds.

Russian issuers also issue securities in foreign currency. Even the state, represented by the Ministry of Finance, has its own Eurobonds.

What are Eurobonds: information on the Moscow Exchange website

Why are Eurobonds issued?

For the same reason as bonds in their country's currency. This is how issuers attract money, and securities in other currencies expand the circle of potential investors.

Eurobonds are issued to attract foreign and non-resident creditors. Eurobonds can be traded on one or several exchanges, but their initial placement is often carried out on a foreign exchange. Otherwise, this instrument is similar to government and corporate bonds.

Ksenia Lapshina analyst at QBF

Why buy Eurobonds

The ruble is not the most reliable currency. But just keeping savings in dollars or euros, hoping that the rate will rise, is not always interesting. I would like the money to work, and the rates on bank deposits in foreign currency are not very high.

Eurobonds allow you to keep money in the desired currency and still receive coupon income. Moreover, even if you invest in Russian securities denominated in euros or dollars, you can benefit from a change in the exchange rate.

This is a fairly convenient option for preserving dollar capital, which gives profitability higher than deposits, and often even higher than inflation. At the same time, if you deliberately approach the choice of an issuer, then the risks of losses are minimal.

Evgeny Marchenko Director of E. M. FINANCE

What are the disadvantages of Eurobonds

Two nuances can make Eurobonds less attractive.

High entry threshold

According to Evgeny Marchenko, most Eurobonds are sold with restrictions. The minimum entry threshold can be tens, hundreds and thousands of dollars or euros.

Even if we consider, for example, the minimum two thousand dollars with which it is possible to buy Gazprom Eurobonds, this amount will not be within the reach of all novice investors. So the high price can be an obstacle to building a diversified portfolio.

Evgeny Marchenko

Analyst Ksenia Lapshina believes that a large start-up capital is needed to form a full-fledged portfolio of Eurobonds - at least one million rubles. For this money, you can buy 11-13 Eurobonds, which, in principle, is not at all that much to be content with a solid income and live on this money.

Tax

Ksenia Lapshina explains that an investor who trades Eurobonds on Russian stock exchanges will eventually have to pay not only personal income tax on profits and coupon income. Profit from the exchange rate difference will also be taxed if it played into the hands of the investor, that is, if the foreign currency has risen in price against the ruble.

Is it worth investing in Eurobonds?

Experts believe that this is a good way to invest money.

Eurobonds can be classified as instruments for novice investors, since the principles of the bonds are quite clear.

Ksenia Lapshina

"Understand" is the key word here. In any case, you need to invest in instruments, the mechanism of which is clear to you. Lifehacker has detailed material on what bonds are, how to choose and buy them. This information is also valid for Eurobonds and will be useful if you are thinking of investing in them.