Yankee bond

A Yankee Bond is a bond issued by a foreign entity, such as a bank or company, but is issued and traded in the United States and denominated in U.S. dollars. For instance, Company ABC is headquartered in France. If Company ABC issues bonds in the United States that are denominated in U.S. dollars, the bonds are Yankee bonds. Yankee bonds are normally issued in tranches, a large debt structure financing arrangement into a lot of portion, each portions have different level of risk, interest rates and maturities, and the value of investment grouping might be extremely high, as much as $1 billion. U.S. investors buy Yankee bonds to branch out into overseas markets. Yankee bonds are same with other bonds which will require the borrower to pay a certain interest rate and principal amount according to the terms of the indenture. Yankee Bonds are administered by the Securities Act of 1933. A non-American company will sell bonds in United States to raise capital from American investors. Therefore, the issuers from non-American company have to register Yankee Bonds with Securities and Exchange Commission (SEC) before offer the bond for sale. Hence, U.S. investors can purchase the securities that issued by foreign entity without worried about the price fluctuation that affected by the changes in currency exchange rates. Yankee bond prices are mostly influenced by the variations of interest rates in U.S. and the financial condition of the issuer.

If current rates in a foreign company’s own country are higher than the comparable bond rates in the United States, investors are able to obtain financing capital at a lower cost. Yankee bond was issued by a non-United State entity in the United State market. Thus, when the size of United State bond market increase and more actively trade by United State investors, it will bring more return to the issuers. Besides, Yankee bonds have few potential advantages for foreign firms seeking to raise new capital.

Risk of Yankee bond can represent a win-win opportunity for both issuers and investors. According to Bell (2011), the higher credit risk, the higher the yield bonds, this reflects on the Yankee bond risk. Yankee Bonds frequently offer higher yields for United State investor compare with the yields that available on comparable, or even lower-rated of bond issues from U.S. issuers. The foreign investors facing credit risk and rate risk, due to the fact that exchange rates can change quickly and dramatically. Hence, affects the total return for non-United State investors. Yankee bonds avoid from currency risk by using the method issued in dollars.

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