
Foreign Bond
A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital. For foreign firms doing a large amount of business in the domestic market, issuing foreign bonds, such as bulldog bonds, Matilda bonds, and samurai bonds, is a common practice. Since investors in foreign bonds are usually the residents of the domestic country, investors find these bonds attractive because they can diversify and add foreign content to their portfolios without the added exchange rate exposure. Because investing in foreign bonds involves multiple risks, foreign bonds typically have higher yields than domestic bonds. A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital.

What Is a Foreign Bond?
A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital. For foreign firms doing a large amount of business in the domestic market, issuing foreign bonds, such as bulldog bonds, Matilda bonds, and samurai bonds, is a common practice.



Understanding Foreign Bonds and Their Risks
Since investors in foreign bonds are usually the residents of the domestic country, investors find these bonds attractive because they can diversify and add foreign content to their portfolios without the added exchange rate exposure. Nevertheless, there are still some unique risks of owning foreign bonds.
Because investing in foreign bonds involves multiple risks, foreign bonds typically have higher yields than domestic bonds. Foreign bonds carry interest rate risk. When interest rates rise, the market price or resale value of a bond falls. For example, say an investor owns a 10-year bond paying 4% and interest rates increase to 5%. Few investors want to take on the bond without a price cut for offsetting the difference in income.
Foreign bonds also face inflation risk. Buying a bond at a set interest rate means the real value of the bond is determined by the amount of inflation taken away from the yield. If an investor purchases a bond with a 5% interest rate during a time when inflation is 2%, the investor’s real payout is the net difference of 3%.
Currency risk is still an implicit issue for foreign bonds. When income from a bond yielding 7% in a European currency is turned into dollars, the exchange rate may, for example, decrease the yield to 2% because of exchange rate differences. Note, however, that this risk is not explicit in the sense that these bonds would always be priced in dollars.
For political risk, investors should consider whether the government issuing the bond is stable, what laws surround the bond’s issuance, how the court system works, and additional factors before investing. Foreign bonds face repayment risk. The country issuing the bond may not have enough money to cover the debt. Investors may lose some or all of their principal and interest.
Some Examples of Foreign Bonds
There are many examples of foreign bonds, and here we only go over a small few. A bulldog bond, for instance, is issued in the United Kingdom, in British pound sterling, by a foreign bank or corporation. Foreign corporations raising funds in the United Kingdom typically issue these bonds when interest rates in the United Kingdom are lower than those in the corporation’s country.
A Matilda bond is a bond issued in the Australian market by a non-Australian company. For example, in June 2016, Apple Inc. sold $1.4 billion in notes maturing in June 2020, January 2024, and June 2026. Apple joined other companies such as Qantas Airways Ltd., Coca-Cola Co., and Asciano Ltd. in selling securities past the seven-year mark that had been the limit for many nonfinancial corporate borrowers in recent years.
A samurai bond is a corporate bond issued in Japan by a non-Japanese company. In May 2016, French bank Societe Generale SA sold $1.1 billion in samurai bonds, including senior and subordinated bonds maturing in seven years. The sale followed Bank of America Corporation’s $1.08 billion offering in a euro-yen format earlier that month.
Related terms:
Bulldog Bond
Bulldog bond is a bond, traded in the United Kingdom, that is purchased by buyers interested in earning a revenue stream from the British pound. read more
Currency Risk
Currency risk is a form of risk that arises from the change in price of one currency against another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. read more
Euroyen Bond
Euroyen bond is a debt security issued by a non-Japanese company outside of Japan to attract non-Japanese investors who seek exposure to the yen. read more
Fixed Income & Examples
Fixed income refers to assets and securities that bear fixed cash flows for investors, such as fixed rate interest or dividends. read more
Interest Rate Risk
Interest rate risk is the danger that the value of a bond or other fixed-income investment will suffer as the result of a change in interest rates. read more
International Bond
International bonds are issued in countries outside of the United States, in their native country's currency. Discover more about these debt investments. read more
Kangaroo Bond
A kangaroo bond is a type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency. read more
Kangaroos
Kangaroos are slang for the stocks that comprise Australia's All-Ordinaries stock market index. read more
Maple Bond
Maple Bond is denominated in Canadian dollars, transacts on the secondary market and gives foreign issuers access to the Canadian debt market. read more
Political Risk
Political risk is the risk that an investment's returns could suffer as a result of political changes or instability in a country. read more