Bonds

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Bond issuer

Duration

Price of bonds

Face value of bonds

Frequency of interest payments

Country risk

Bonds can be distinguished on the basis of the country of origin (market and the headquarters of the issuer).

Bonds can be issued in any foreign country. They are called international bonds.

A foreign bond is issued on the financial market of a foreign country, and the price is determined in the currency of the given country.

The creditability of the foreign country is a key factor in this case. A country’s creditability depends on economic fundamentals.

Developed countries

Countries with developed economy and legal system belong to this group, such as the countries of Western Europe. The GDP per capita and the value of human capital are the largest in these countries worldwide. The capital markets in these countries are regulated effectively.

Capital markets work smoothly in Commonwealth countries. People who wish to invest are able to give their savings directly to firms. On the European market, the intermediation of banks is significant. People place their savings in banks and companies request financing from banks.

The bond market is the most developed in the United States. The US has such a stable bond market, that the average duration of bonds is 13-14 years, but there are even bonds with maturity of 30-50 years.

The corporate bond market in the United Kingdom is also developed, but bank loans are more important for business financing.

The political and historical events between the two world wars affected the German corporate bond market to a large extent. After the introduction of the Euro, more and more firms have attempted to receive funds from the capital market as well. 

Less developed, developing or emerging countries

The biggest economies in this group is the so-called BRIC countries. Eastern European countries, the most developed African nations, Latin-American states and Middle East belong to this group as well.

MINT countries (Mexico, Indonesia, Nigeria, and Turkey) and Next Eleven countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam) are also included in this group.

Many investors may find the undeveloped banking system and financial markets unattractive. Companies can access funds with more difficulties, and that is why they cannot develop at maximum potential. Sometimes the lack of access to funds can even result the bankruptcy of those firms. The bankruptcy of banks is an additional risk.

The markets of these countries are usually smaller. Because of the smaller number of players, the liquidity on these markets is not adequate, especially in case of panic situations. Putsches and legal changes are more common thus market risk is not negligible.

Foreign exchange risk

Sector (industry) related risk

Bond credit rating

Coupons

Bond interest rate

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