Tutorial: Corporate Bonds International


What are international corporate bonds?

International corporate bonds are debentures issued by industrial companies in almost all countries of the world for subscription. The most important issuers are based in the European Union, the USA, Japan, India, and China. The array of companies is as vast as their sectors, with a certain focus on automobile, construction, financial service providers, energy, telecommunication, tobacco, and food. Corporate bonds are used for funding debt capital requirements.

How do international corporate bonds work?

New international corporate bonds are issued as fixed- or floating-rate securities. The dividend (coupon) is usually paid once a year, and at the end of maturity the bond is redeemed in full. The maturities are usually within a range of three to thirty years. If the bond has already been issued in the past, the investor may buy the security at its market price which is set by supply and demand. One criterion of evaluation for a bond is the rating it gets from independent rating agencies. The lower the rating, the riskier the investment – and the higher the interest rate. If you buy international corporate bonds in foreign currencies, i.e. so-called foreign bonds, you should take the currency risk into consideration.

Your benefits

When subscribing to international corporate bonds you trust in variety and global know-how. Your investment opportunities include for example electronics in Asian Tiger states, Japanese car makers, as well as American tobacco companies. In addition, you can invest in companies that are selling their products in the largest markets of the world and whose sales figures are nothing short of the GDP of small countries. Corporate bonds offer above-average interest over long periods of time. You can follow a long-term (“buy-to-hold”) strategy and do not have to monitor the daily fluctuations on the equity markets. Historic market data show that international corporate bonds have not only proven financially strong but have also offered attractive returns.

Your advantages

  • You benefit from attractive interest rates and periodical interest payments.
  • Investment opportunities in renowned international companies.
  • You can benefit from exchange rate gains.

Details you should be aware of

  • The downgrading of the rating of a company during the term of the bond may lead to price losses.
  • Between issue date and maturity, price fluctuations are possible, which means that the sale of the bond prior to maturity may result in a loss.
  • The currency risk may cause losses in interest and redemption payments.
  • The 100% capital redemption only applies to the end of maturity.

Ho do international corporate bonds react to…

… rising interest rates?
International corporate bonds with fixed interest rate fall when interest rates are rising. If you sell these bonds prior to maturity, you may record a loss.
International corporate bonds with floating interest rate, on the other hand, benefit from rising interest rates. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the Euribor, an increase in the level of interest rates also means a rising interest rate for the bonds. The price of the bond tends to oscillate around face value.

… stable interest rates?
In the case of stable interest rates, neither the price nor the coupon of international corporate bonds changes.

… falling interest rates?
International corporate bonds with fixed interest rate increase when interest rates are falling. If you sell these bonds prior to maturity, you may record a profit.
Falling interest rates, on the other hand, have a negative impact on international corporate bonds with floating interest rate. Given that these bonds ("floaters") have their interest rate periodically adjusted to a referential rate such as the Euribor, a decrease in the level of interest rates also means a falling interest rate for the bonds. The price of the bond tends to oscillate around face value.