Euro bond Market:

A.Description: A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. Also called external bond; "external bonds which, strictly, are neither Eurobonds nor foreign bonds would also include: foreign currency denominated domestic bonds. . It can be categorised according to the currency in which it is issued. London is one of the centers of the Eurobond market, with Luxembourg being the primary listing center for these instruments. Eurobonds may be traded throughout the world - for example in Singapore or Tokyo. Eurobonds are named after the currency they are denominated in. For example, Euroyen and Eurodollar bonds are denominated in Japanese yen and American dollars respectively. Eurobonds were originally in bearer bond form, payable to the bearer and were also free of withholding tax. The bank paid the holder of the coupon the interest payment due. Usually, no official records were kept. The word Eurobond was originally created by Julius Strauss. 1.Concept: Euro Bond issue is one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. An example is a Dutch borrower issuing DM-denominated bonds to investors in the UK, Switzerland and the Netherlands. Floatation costs of the Eurobond are comparatively higher than costs indicated with syndicated Eurocredits. Primary market: A borrower desiring to raise funds by issuing Euro bonds to the investing public will contact an investment banker and ask it to serve as lead manager of an underwriting syndicate that will bring the bonds to market. The underwriting syndicate is a group of investment banks, merchant banks, and the merchant banking arms of commercial banks that specialize in some phase of public issuance. The lead manager will usually invite co managers to form a managing group to help negotiate terms with the borrower, ascertain market conditions and manage the issuance. Secondary Market: Eurobonds purchased in the primary market can be resold before their maturities in the secondary market. The secondary market is an over the counter market with principal trading in London. However, important trading is also done in other major European cities. The bonds are quoted in percentage of their value, without taking into account the coupon already running.
2.component:

There are two types of international bonds. Bonds denominated in the currency of the country where they are placed but issued by borrowers foreign to the country are called foreign bonds or parallel bonds Bonds that are sold in countries other than the country represented by the currency denominating them are called Eurobonds. 3.Use of Eurobond by MNC: Eurobonds also have a secondary market ,with the adoption of the euro ,MNCs of many different countries can issue bond denominated euro with which allows for a much larger& liquid market. MNCs have benefited because they can more easily obtain debt.

B. Analysis
1.qualitative:
Eurobonds are use not only in Europe but also in 18 countries .Australia Belgium Cyprus is one of them. The Eurobond market is made up of investors, banks, borrowers, and trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special kind of bond issued by European governments and companies, but often denominated in non-European currencies such as dollars and yen. They are also issued by international bodies such as the World Bank. The creation of the unified European currency, the euro, has stimulated strong interest in euro-denominated bonds as well; however, some observers warn that new European Union tax harmonization policies may lessen the bonds' appeal. Conventional foreign bonds are much simpler than Eurobonds; generally, foreign bonds are simply issued by a company in one country for purchase in another. Usually a foreign bond is denominated in the currency of the intended market. For example, if a Dutch company wished to raise funds through debt to investors in the United States, it would issue foreign bonds (dollar-denominated) in the United States. By contrast, Eurobonds usually are denominated in a currency other than the issuer's, but they are intended for the broader international markets. An example would be a French company issuing a dollar-denominated Eurobond that might be purchased in the United Kingdom, Germany, Canada, and the United States. However, these generalizations should not obscure the fact that the terms of many Eurobond issues are uniquely tailored to the issuers' and investors' needs, and can vary in terms and form substantially. A large number of Eurobond transactions involve elaborate swap deals in which two or more parties may exchange payments on parallel or opposing debt issues to take advantage of arbitrage conditions or complementary financial advantages (e.g., cheaper access to capital in a particular currency or funds at a lower interest rate) that the various parties can offer one another.

The Eurobond market consists of several layers of participants. First there is the issuer, or borrower, that needs to raise funds by selling bonds. The borrower, which could be a bank, a business, an international organization, or a government, approaches a bank and asks for help in issuing its bonds. This bank is known as the lead manager and may ask other banks to join it to form a managing group that will negotiate the terms of the bonds and manage issuing the bonds. The managing group will then sell the bonds to an underwriter or directly to a selling group. The three levelsmanagers, underwriters, and sellersare known collectively as the syndicate. The underwriter will actually purchase the bonds at a minimum price and assume the risk that it may not be possible to sell them on the market at a higher price. The underwriter (or the managing group if there is no underwriter) sells the bonds to a selling group that then places bonds with investors. The syndicate companies and their investor clients are considered the primary market for Eurobonds; once they are resold to general investors, the bonds enter the secondary market. Participants in the market are organized under the International Primary Market Association (IPMA) of London and the Zurich-based International Security Market Association (ISMA).

2.Quantitative:

Eurobonds are sold in countries other than the country represented by the currency denominating them. They have been very popular during the last decade as a means of attracting long-term funds. U.S.-based MNCs such as McDonalds and Walt Disney commonly use the Eurobond market. Non-U.S. firms such as Guinness, Nestl, and Volkswagen also use this market as a source of funds. In recent years, governments and corporations from emerging markets such as Croatia, Ukraine, Romania, and Hungary have frequently utilized the Eurobond market. New corporations that have been established in emerging markets rely on the Eurobond market to finance their growth. They have to pay a risk premium of at least three percentage points annually above the U.S. Treasury bond rate on dollardenominated Eurobonds. For Example: If Brazils government was able to substantially reduce the local inflation, the supply schedule of loanable funds denominated in Brazilian real would shift out (to the right). Conversely, the demand schedule of loanable funds denominated in real would shift in (to the left). The two shifts would result in a lower equilibrium interest rate. One might think that investors from other countries should invest in savings accounts in high-inflation countries such as Brazil. However, the currencies of these high-inflation countries usually weaken over time, which may more than offset the

interest rate advantage as explained later in the text. Second, savings deposits in some of these countries are not insured, which presents another risk to foreign investors. Third, some emerging countries impose restrictions that discourage investors from investing funds there. Supply and demand conditions can explain the relative interest rate for any currency. The Japanese yens very low interest rate is attributed to a large supply of savings by Japanese households relative to a weak demand for funds because of a weak economy (limited borrowing). The relatively high interest rate in Brazil is attributed to both high inflation, which encourages firms and consumers to borrow and make purchases before prices increase further, and to excessive borrowing by the government. We can easily discuss the analysis by an example. These example is given below .

Summary Composite Bond Rates Bond Market Summary Bond Screener

3:37 pm - The Week in Review: Yields Test and Hold Key Resistance

Treasuries saw a mixed week as buying took hold up front while sellers had their way at the long end. Friday's in-line nonfarm payroll report (192K actual v. 195K expected) catapulted shorter maturities into the green for the week while helped pare the losses at the long end. Nonfarm private payrolls (192K actual v. 205K expected) fell short of estimates and the unemployment rate ticked up to 6.7% (6.6%). The rest of the week's data was mostly disappointing as Chicago PMI (55.9 actual v. 60.1 expected), ISM Index (53.7 actual v. 54.0 expected), ADP Employment Change (191K actual v. 215K expected), trade balance (-$42.3 bln actual v. -$39.3 bln expected), and ISM Services (53.1 actual v. 53.5 expected) all missed. Only factory orders (1.6% actual v. 1.1% expected) saw a notable beat. Up front, the 2y shed -6bps to finish the week @ 0.407%. All of the week's decline came postnonfarm payrolls as traders began to price in the possibility maybe the Fed won't be hiking rates anytime in the near future. Friday's closed marked the lowest in two and a half weeks.

The 5y lost -7bps to close @ 1.704%. Selling early in the week ran the yield through key trend line resistance in the 1.725% area and all the way up to 2.800%. However, aggressive buying following the jobs report pushed action back below the trend line to its lowest close in six sessions. That level will remain in focus in the days ahead. The 10y endured a flat week, settling @ 2.726%. Selling mid-week caused the benchmark yield to probe the upper end of the 2.600%/2.800% range that has been in place since late-January, but Friday's aggressive bid pushed action back down to last Friday's closing level. Both the 50 and 200 dma provide near-term support near 2.725%. At the long end, the 30y climbed +4bps to 3.585%. The yield on the long bond tested trendline resistance off the January highs near 3.650%, but was unable breakout as buyers emerged near the 50 dma. Focus now turns to the key 3.150% region with a breakdown setting up a potential move into 3.150%. A steeper curve took hold as the 5-30-yr spread widened to 188bps.

The Week Ahead

Monday's data is limited to consumer credit (15). STL's Bullard will discuss monetary policy and the economy (11:45). Tuesday will see just JOLTS - Job Openings (10). Treasury will auction $30 bln 3y notes. Minny's Kocherlakota will speak on "Monetary Policy and the State of the Economy" (13:30). Philly's Plosser discusses "Enhancing Prudential Standards in Financial Regulations" (14:45). The Federal Reserve Board of Governors debate the supplementary leverage ratio (16). Data remains slow on Wednesday with the weekly MBA Mortgage Index (7), wholesale inventories (10), and the latest FOMC minutes (14). Treasury will hold a $21 bln 10y note reopening. Chicago's Evans talks monetary policy and the economy (15:30) before Fed Governor Tarullo speaks at the 23rd Annual Hyman P. Minsky Conference (19). Thursday's data includes initial and continuing claims, import/export prices (8:30), and the Treasury budget (14). Treasury will reopen $13 bln 30y bonds. Chicago's Evans discuss "Central Banking After the Great Recession" (11:50). Data concludes for the week on Friday with PPI (8:30) and Michigan Sentiment (9:55) due out.

Dollar Probes 80.50 Resistance:

The Dollar Index hovers little changed near 80.45 as an uneventful session nears the final hour of trading. Today's action has seen the Index stuck in a 20 cent range (80.35-80.55) as trade continues to test resistance in the 80.50 area following the in-line nonfarm payroll report. EURUSD is -20 pips @ 1.3695 as trade slips for a third session. The single currency saw some volatility early in U.S. trade on reports the European Central Bank had modeled up to EUR1 trln in bond purchases, but those rumors were quickly rebuffed by ECB VP Constancio. Support in the 1.3700/1.3750 area remains under close watch and is helped by the 100 dma. GBPUSD is -15 pips @ 1.6580 as sellers remain in control for a fourth day. Sterling has been offered throughout the day, aside from a quick move above the flat line following the U.S. nonfarm payrolls, as the Halifax Home Price Index was the latest number out of the UK to miss estimates. The 50 dma is providing support at current levels while a breakdown puts the 1.6500 level in play. USDCHF is +10 pips @ .8920 as trade fights for its best close in one and a half months. Early buying ran the pair above the 100 dma (.8942), but steady selling over the remainder of the session has wiped away most of the gains. Action will now look to hold

support in the .8880 area. Swiss data scheduled for Monday includes CPI and foreign currency reserves. USDJPY is -65 pips @ 103.25 as trade pulls back following six days of gains. The 103.00 area will be of particular interest as support there is helped by the 100 dma. AUDUSD is +50 pips @ .9280 as trade looks for its best close in three and a half months. Resistance in the .9300 area has served as a headwind over the past two weeks as trade has tested it several times, but has failed to breakout. Australia's ANZ Job Advertisements data is due out Sunday evening. Chinese banks are closed in observation of Tomb Sweeping Day. USDCAD is -50 pips @ 1.0985 as trade presses one and a half-month lows. Weighing on the pair was this morning's stronger than expected Canadian employment change (42.9K actual v. 21.5K expected) and the downtick in the unemployment rate to 6.9% (7.0%). Post-data selling dropped action onto the 1.0950 level, but trade has rebounded after Ivey PMI (55.2 actual v. 58.3 expected, 57.2 previous) saw a sizable drop. Support in the 1.0950 area remains key. The Bank of Canada's Business Outlook Survey will cross the wires on Monday.

The dire fiscal situation in EMU member states is often attributed to a lack of budgetary discipline. This factor has undoubtedly played an important role. Although many countries had improved their budgetary positions in the run-up towards EMU-membership, it is by now well-documented that

several countries loosened their belt considerably once their place in the monetary union was secured (CPB, 2011). Moreover, the budgetary adjustment that countries planned in their stability programs was usually not achieved, as the budgetary adjustment that was actually implemented in practice
was

too politicized to provide sufficient peer pressure and to ensure an effective enforcement of EMUs budgetary rules, especially in good times (De Haan, Berger and Jansen, 2004). The fact that Council failed to impose sanctions when Germany and France had an excessive deficit in 2005 provided a severe blow to the credibility of the Stability and Growth Pact (SGP). As a result of all this, in many countries fiscal policy turned out to be procyclical and both budget deficits and government debts were much higher than they could have been if the rules of the SGP had been fully respected. much less ambitious (Beetsma, Giuliodori and Wierts, 2009). Finally, the Ecofin Council proved to be As a result, several EMU member states did not have the budgetary starting position that was necessary to absorb large economic shocks like the global financial crisis. Not all EMU member states had achieved their medium term objective for the cyclically adjusted budget balance in 2007, and some countries still had an actual budget deficit above the threshold of 3% of GDP (Table 1). Government debts were also too high in many countries. The bad starting position was most obvious in some of the current problem countries: Greece, Portugal and Italy. But surprisingly, it was completely absent in Spain and Ireland, that had budget surpluses and very low government debts in 2007. Indeed, the budgetary performance before the crisis and the

C.Findings: size of sovereign bond spreads now are hardly correlated (Pisani-Ferry, 2012). Lack of budgetary discipline is not sufficient to explain the current fiscal situation. Another important cause is the large and sudden deterioration of the fiscal position that occurred as a result of the global financial crisis (Gilbert and Hessel, 2012). The increase in deficits and debts was in several cases much larger than what the existing budgetary rules in EMU were designed to deal with. In the spring of 2008, a few month before the collapse of Lehman Brothers, the European Commission

projected an average budget deficit for 2009 of only 1.1% of GDP in the euro area. But due to the crisis, the average actual budget deficit for 2009 amounted to 6.3% of GDP, a staggering 5.2% higher than foreseen before the crisis (figure 1). Almost all EMU member states breached the 3%threshold for the budget deficit in 2009, including the countries that stuck to the rules before the crisis. This could only have been avoided if EMU countries had originally targeted an average budget surplus of over 2% of GDP. The higher deficits also led to a substantial increase in government debt. The average debt in the euro area increased by almost 22% of GDP between 2007 and 2011 (figure 2). This has brought the average debt ratio well over the 60% threshold of the Maastricht treaty, and towards levels that are thought to be associated with lower long term growth (Reinhart and Rogoff, 2010; Cecchetti, Mohanty and Zampolli, 2011). The deterioration of public finances was even larger still in most of the countries that are currently under pressure from financial markets, with the exception of Italy where the increase in the deficit was relatively contained. In Portugal, Ireland, Greece and Spain, the budget deficit for 2009 increased by Table 1: Budgetary situation at the start of the crisis (% GDP, 2007) GR* PT ITA FRA EMU GER NL IRL SP Budget balance -6,4 -3,1 -1,5 -2,7 -0,7 0,3 0,2 0,1 1,9 Cyclically adjusted budget balance -7,1 -2,6 -1,3 -2,5 -0,6 -0,1 0,1 0 2,1
Public debt 105 68,3 104 63,9 66,2 64,9 45,3 25 36,1 Source: EC Spring Forecast 2008. *For Greece numbers from after the revision These results are in line with

Reinhart and Rogoff (2009a,b), who show that financial crises usually lead to a large increase in government debt. They also confirm the historical pattern that the direct costs of financial sector bailouts only play a limited role in this increase (see figure 2). Financial sector bailout only had a significant effect on debt in Ireland, but the Irish debt also increased strongly without these costs. The effect of discretionary budgetary stimulation packages was also relatively small. As is usual after financial crises, by far the largest share of the budgetary deterioration is related

to the deep and prolonged economic downturn. An important remaining question is why the economic downturn could cause such a large swing in the budgetary position of member states. Two factors explain the large swing in the budget balance. First, the financial crisis was an unusually large negative shock. Total GDP-growth over 2008 and 2009 was almost 7 percentage points lower than projected before the crisis. Whereas ex-post estimates of the

2009 output gap are (for most countries) more or less comparable with the representative output gap that the European Commission uses to calculate the individual benchmarks (Medium Term Objectives, or MTOs) for the cyclically-adjusted budget balance, the total downward revision (output gap and potential growth) was far larger than the MTO was designed to deal with (Gilbert and Hessel, 2013).. The MTOs were calculated over the period 1980-2005 (European Commission, 2006), when growth was relatively stable due to the great moderation. They therefore do not provide adequate cover for shocks as big as the 2009 recession. The large slowdown in (expected) growth explains an important part of the budgetary deterioration in all EMU Member States. 1. Eurobonds are said in contries other than the country of the currency denominating the bonds. 2. Eurobonds have become very popular as a means of attracting funds. 3. Eurobonds are usually issued in bearer form. 4. Eurobonds are denomitated in number currency. 5. Cupon payments are made yearly. 6. Eurobond also have a secondary market. 7. MNCs have benifited because they can more easily obtain debt. D. Recommendation: The adaption of the euro has increased the use of bond financing & reduce the cost of financing for MNCs conducing business in Europe. So MNCs should interfere to frame their funds by using euro loans at a lower cost. E. Advantages & Disadvantages: Advantages: Considerable market capacity Diversifying sources of borrowings Source for long-term investment resources Access to a broad investor base Establishing a credit history Disadvantages: