What is: Yankee Bond

What is: Yankee Bond

A Yankee Bond is a type of bond issued by a foreign entity, typically a non-U.S. corporation or government, in the U.S. market and denominated in U.S. dollars. These bonds are attractive to foreign issuers because they allow them to tap into the deep and liquid U.S. bond market without having to issue bonds in their home currency.

Yankee Bonds are subject to the same regulations and requirements as domestic bonds issued in the U.S. market. They are typically registered with the Securities and Exchange Commission (SEC) and must comply with U.S. securities laws.

Investors in Yankee Bonds are exposed to currency risk, as the bonds are denominated in U.S. dollars but issued by foreign entities. This means that fluctuations in the exchange rate between the U.S. dollar and the issuer’s home currency can affect the value of the bond.

Yankee Bonds can be issued in various maturities, ranging from short-term to long-term, and may offer fixed or floating interest rates. They are often used by foreign entities to raise capital for various purposes, such as financing expansion projects or refinancing existing debt.

The name “Yankee Bond” is derived from the historical use of the term “Yankee” to refer to Americans. The term was first used in the 1960s to describe U.S. dollar-denominated bonds issued by foreign entities in the U.S. market.

Yankee Bonds are typically sold to institutional investors, such as pension funds, insurance companies, and mutual funds. They are considered to be relatively safe investments, as they are usually issued by reputable foreign entities with strong credit ratings.

Investors in Yankee Bonds receive periodic interest payments and the principal amount of the bond back at maturity. The interest rate on Yankee Bonds is determined by various factors, including the creditworthiness of the issuer, prevailing market interest rates, and the term of the bond.

Yankee Bonds are traded on the secondary market, where investors can buy and sell them before they mature. The prices of Yankee Bonds can fluctuate based on changes in interest rates, credit ratings, and market conditions.

Overall, Yankee Bonds provide foreign entities with a cost-effective way to raise capital in the U.S. market and offer U.S. investors the opportunity to diversify their portfolios with international bonds denominated in U.S. dollars.