Eurodollar bonds are bonds that are dominated by U.S. dollars. These are bonds given by a company overseas and are held in a foreign institution in a country outside the U.S. and the as well as the country of the issuers. This is a type of Eurobond that does not necessarily deal in euros any more because of the global spread. These are external bonds that are international bonds dominated in a currency other than that of the issuer.
A Chinese bank, for example, might hold Japanese-issued dollar-dominated Eurodollar bonds. Investing in these is often considered a good decision but only if one wisely makes the decision. If you are planning to invest in one for your company, remember the tips below before you finalize the decision.
Tips to invest in Eurodollar bonds wisely
You need to consider both the advantages and drawbacks
Before you reach any decision, remember to consider the possible drawbacks of investing in a Eurodollar bond. For example, there can be a negative change in the exchange rate before the transaction ends. Similarly, you must remember that there is no domestic regulation in these international bonds and you must commit to this only if you are comfortable with this. You need to thoroughly overview the terms and keep in mind the possibility of such setbacks.
Overview of the risk profile
Always remember to consider all risks involved in the bond investment before you proceed. Different bonds have different risks and you must remember to look at all risks involved.
Overview the terms of the bond in the prospectus
Thoroughly go through the terms and conditions of the bond. Pay attention to the parts of the bond. Consider the fees, terms, and agreements. A bond I the government bond fund might not be a government bond. You should keep a copy of the prospectus with you.
Consult a financial advisor
It is wise to consult a financial advisor or broker to ensure that fully understand the risks involved in finalizing the deal. Do not rely on your own understanding of the terms and risks. It is better to call in professional help.
Don’t target only for higher yield
A big mistake investors often make is to reach for yield. A higher yield often means higher risk too. Also, remember not to go for a bond with a higher yield but low credit qualities.
Ask the broker about the last traded bond
By looking into the last bond the issuer traded you will be able to analyze the company’s liquidity and competitiveness or prices.
It is better not to try to time the market
It is not wise to speculate interest rates. Decisions are usually made on where interest rates have been instead of what they will be in a few years. Focus on using an investment strategy that will help you achieve your goals.
In conclusion, it is the homework you do that will determine where the bond will lead. While investing in a Eurodollar bond seems like a good decision, do not forget the above-mentioned tips to avoid any losses.