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. The first Eurobonds were issued in 1963 by Italian motorway network Autostrade, who issued 60,000 bearer bonds at a value of USD250 each for a fifteen-year loan of USD15m, paying an annual coupon of 5.5%. The issue was arranged by London bankers S. G. Warburg. and listed on the Luxembourg Stock Exchange. Their conception was largely a reaction against the imposition of the Interest Equalization Tax in the United States. The goal of the tax was to reduce the US balance-of-payment deficit by reducing American demand for foreign securities. If foreign securities were denominated in dollars and not foreign currency, however, then they would not affect the US balance-of-payment deficit because Americans would not need to exchange dollars to acquire them. Clever financiers (initially based in London) realized this and the Eurobond was born. Americans could bypass the costly tax and Europeans could keep open access to US capital. The majority of Eurobonds are now owned in ‘electronic’ rather than physical form. The bonds are held and traded within one of the clearing systems (Euroclear and Clearstream being the most common). Coupons are paid electronically via the clearing systems to the holder of the Eurobond (or their nominee account).

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