What Does Eurobond Mean?

A bond issued in a currency other than the currency of the country or market in which it is issued.

Investopedia explains Eurobond

Usually, a eurobond is issued by an international syndicate and categorized according to the
currency in which it is denominated. A eurodollar bond that is denominated in U.S. dollars and
issued in Japan by an Australian company would be an example of a eurobond. The Australian
company in this example could issue the eurodollar bond in any country other than the U.S.

Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country
in which to offer their bond according to the country's regulatory constraints. They may also
denominate their eurobond in their preferred currency. Eurobonds are attractive to investors as
they have small par values and high liquidity.

What Is a Eurobond?
Bonds are the way that governments, companies, and other organizations sell their debt. Bonds
are essentially loans that are sought from investors to finance the bond issuer's debt. There are
four basic types of bonds:

- U.S. government (and its agencies) - Corporate - State and local government - Foreign
government

A Eurobond is a foreign bond that can be issued by either a foreign sovereign government or
company. Despite its name, Eurobonds are not just for Europeans. A Eurobond is a bond issued
and traded in a country other than the one in which its currency is denominated. For example, a
U.S. company could issue a Eurobond in any country that does not use the U.S. dollar as its
currency, whether the country is Japan or France. However, most Eurobonds are issued by non-
European companies or governments to be traded by European investors.

Eurobonds make up the majority of new issues in the international bond market. The
international bond market is now larger than the U.S. bond market. Like regular bonds,
Eurobonds have a maturation date in which an investor can cash in the bonds. Interest is usually
paid annually and the principal is paid upon maturation of the bond.

Investing in Eurobonds, like all other investments, comes with certain risks. Since it is considered
international investing, the lack of information on economic and political conditions in other
countries raises that risk even higher. In addition, since the value of Eurobonds is based upon
foreign currency rates as compared to the U.S. dollar, there is a good chance that the value of the
Eurobond will be higher or lower at the maturation date. This is due to the volatility in foreign
currency trading.

A bond that is (1) underwritten by an international syndicate, (2) issued simultaneously to

investors in a number of countries, and (3) issued outside the jurisdiction of any single country.
Eurobonds are often bearer bonds

Bonds issued or traded in a country using a currency other than the one in which the bond is
denominated. This means that the bond uses a certain currency, but operates outside the
jurisdiction of the central bank that issues that currency. Eurobonds are issued by multinational
corporations; for example, a British company may issue a eurobond in Germany, denominating it
in U.S. dollars. It is important to note that the term has nothing to do with the euro, and the prefix
"euro-" is used more generally to refer to deposits outside the jurisdiction of the domestic central
bank.
EXPANSIONARY FISCAL POLICY:

A form of fiscal policy in which an increase in government purchases, a decrease in

taxes, and/or an increase in transfer payments are used to correct the problems of a
business-cycle contraction. The goal of expansionary fiscal policy is to close a
recessionary gap, stimulate the economy, and decrease the unemployment rate.
Expansionary fiscal policy is often supported by expansionary monetary policy. An
alternative is contractionary fiscal policy.
Expansionary fiscal policy is designed to stimulate the economy during or
anticipation of a business-cycle contraction. This is accomplished by increasing
aggregate expenditures and aggregate demand through an increase in government
spending (both government purchases and transfer payments) or a decrease in taxes.
Expansionary fiscal policy leads to a larger government budget deficit or a smaller
budget surplus.

In general, expansionary fiscal policy works through the two sides of the
government's fiscal budget -- spending and taxes. However, it's often useful to
separate these two sides into three specific tools -- government purchases, taxes,
and transfer payments.

Government Purchases

One of the three fiscal policy tools available to the government sector is government
purchases. Government purchases are expenditures by the government sector,
especially those by the federal government, on final goods or services. It is that
portion of gross domestic product purchased by governments.

These purchases are used to buy everything from aircraft carriers to paper clips,
from office furniture to highway construction, from traffic lights to teacher salaries.
The actual purchases are typically undertaken by individual government agencies.
Highway construction, for example, is undertaken with funds appropriated to the
Department of Transportation. Aircraft carriers are financed with funds appropriated
to the Department of Defense.

Expansionary fiscal policy involves an increase in the funds appropriated to these

assorted agencies. The agencies then make the additional purchases which stimulate
aggregate production, boost income, and increase the level of employment.

While an increase in government purchases have been used frequently over the
years to implement expansionary fiscal policy, it can be a relatively involved process.
Moreover, additional government purchases leads to a relatively larger government
sector. For these reason, policy makers often opt for the second fiscal policy tool --
taxes.

Taxes

The second of three fiscal policy tools is taxes, primarily personal income taxes
levied by the federal government, but other taxes are also used. Taxes are the
involuntary payments that the government sector imposes on the rest of the
economy to generate the revenue needed to provide public goods and to undertake
other government functions. Personal income taxes are more specifically the taxes
collected on the income received by members of the household sector.
The federal income tax system, administered by the Internal Revenue Service (IRS),
involves a set of tax rates that are applied to the income received by the taxpayers.
The bulk of the taxes are withheld from employee paychecks by then paid to the
federal government by employers. And discrepancy between taxes withheld and the
actual tax liability is then settled when income tax returns are filed at the end of the
year.

Expansionary fiscal policy involves either a decrease of the income tax rates or a
one-time rebate of taxes previously paid. The reduction in taxes provides the
household sector with additional disposable income that can be used for consumption
expenditures, which then stimulates aggregate production and employment and
leads to further increases in income.

Because tax changes tend to be administratively easier to implement, they are often
preferred over government purchases when conducting expansionary fiscal policy.
Moreover, political leaders and voters usually prefer a reduction in the tax burden to
an increase in government spending.

Transfer Payments

The third fiscal policy tool is transfer payments. Transfer payments are payments
made by the government sector to the household sector with no expectations of
productive activity in return. The three common transfer payments are Social
Security benefits to the elderly and disable, unemployment compensation to the
unemployed, and welfare to the poor.

Like the income tax system, transfer payments rely on a payment schedule based on
qualifying characteristics of the recipients -- age, employment status, income, etc.
Those who meet the criteria then receive payments.

Expansionary fiscal policy involves either an increase in payment schedule for one or
more of the transfer systems or perhaps some sort of across-the-board lump-sum
payment to all who qualify. That is, the unemployment compensation might be
increased by 5 percent or all Social Security recipients might receive an extra $500
payment. The increase in transfer payments provides the household sector with
additional disposable income that can be used for consumption expenditures, which
then stimulates aggregate production and employment and leads to further increases
in income.

Recessionary Gap
Recessionary Gap
Expansionary fiscal policy is used to address
business-cycle instability that gives rise to
the problem of unemployment, that is, to
close a recessionary gap. A recessionary gap
exists if the existing level of aggregate
production is less than what would be
produced with the full employment of
resources. This gap arises during a business-
cycle contraction and typically gives rise to
higher rates of unemployment.

A recessionary gap is commonly illustrated

using the aggregate market (AS-AD
analysis). The exhibit to the right presents the standard aggregate market. The
vertical long-run aggregate supply curve, labeled LRAS, marks full-employment real
production. Long-run equilibrium in the aggregate market necessarily results in full-
employment real production.

The positively-sloped short-run aggregate supply curve is labeled SRAS. Short-run

equilibrium in the aggregate market occurs at the price level and real production
corresponding to the intersection of the aggregate demand curve and this SRAS
curve. Should short-run real production fall short of full-employment real production,
then a recessionary gap results. However, to identify this gap an aggregate demand
curve needs to be added to the graph.

To include an aggregate demand curve that generates a recessionary gap for this
aggregate market, click the [Recessionary Gap] button. Doing so reveals a short-run
equilibrium level of real production that is less than full employment, which is a
recessionary situation. Note that the aggregate demand curve intersects the SRAS
curve at a real production level to the left of the LRAS curve. This means the short-
run real production is less than full-employment real production. The difference
between short-run equilibrium real production and full-employment real production is
the

Money Market: Treasury Bills (T-Bills)

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Treasury Bills (T-bills) are the most marketable money market security. Their popularity is mainly due to their
simplicity. Essentially, T-bills are a way for the U.S. government to raise money from the public. In this
tutorial, we are referring to T-bills issued by the U.S. government, but many other governments issue T-bills
in a similar fashion.

T-bills are short-term securities that mature in one year or less from their issue date. They are issued
with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their
par (face) value; when they mature, the government pays the holder the full par value. Effectively, your
interest is the difference between the purchase price of the security and what you get at maturity. For
example, if you bought a 90-day T-bill at $9,800 and held it until maturity, you would earn $200 on your
investment. This differs from coupon bonds, which pay interest semi-annually.

Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. If
you want to buy a T-bill, you submit a bid that is prepared either non-competitively or competitively. In non-
competitive bidding, you'll receive the full amount of the security you want at the return determined at the
auction. With competitive bidding, you have to specify the return that you would like to receive. If the return
you specify is too high, you might not receive any securities, or just a portion of what you bid for. (More
information on auctions is available at the TreasuryDirect website.)

The biggest reasons that T-Bills are so popular is that they are one of the few money market instruments
that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000,
$10,000, $25,000, $50,000, $100,000 and $1 million. Other positives are that T-bills (and all Treasuries) are
considered to be the safest investments in the world because the U.S. government backs them. In fact, they
are considered risk-free. Furthermore, they are exempt from state and local taxes. (For more on this, see
Why do commercial bills have higher yields than T-bills?)

The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe.
Corporate bonds, certificates of deposit and money market funds will often give higher rates of interest.
What's more, you might not get back all of your investment if you cash out before the maturity date.

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a
series of payments to the seller and, in exchange, receives a payoff if a credit instrument
(typically a bond or loan) undergoes a defined 'Credit Event', often described as a default
(fails to pay). However the contract typically construes a Credit Event as being not only
'Failure to Pay' but also can be triggered by the 'Reference Credit' undergoing
restructuring, bankruptcy, or even (much less common) by having its credit rating
downgraded.

Investopedia explains Credit Default Swap (CDS)

The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees
the credit worthiness of the product. By doing this, the risk of default is transferred from the holder
of the fixed income security to the seller of the swap.

For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller
of the swap, should the bond default in its coupon payments.

In finance, the yield curve is the relation between the interest rate (or cost of borrowing)
and the time to maturity of the debt for a given borrower in a given currency. For
example, the U.S. dollar interest rates paid on U.S. Treasury securities for various
maturities are closely watched by many traders, and are commonly plotted on a graph
such as the one on the right which is informally called "the yield curve." More formal
mathematical descriptions of this relation are often called the term structure of interest
rates.

A line that plots the interest rates, at a set point in time, of bonds having equal credit
quality, but differing maturity dates. The most frequently reported yield curve compares
the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is
used as a benchmark for other debt in the market, such as mortgage rates or bank lending
rates. The curve is also used to predict changes in economic output and growth.

An interest rate environment in which long-term debt instruments have a lower yield than short-
term debt instruments of the same credit quality. This type of yield curve is the rarest of the three
main curve types and is considered to be a predictor of economic recession.

Partial inversion occurs when only some of the short-term Treasuries (five or 10 years) have
higher yields than the 30-year Treasuries do. An inverted yield curve is sometimes referred to as
a "negative yield curve".
Investopedia explains Inverted Yield Curve
Historically, inversions of the yield curve have preceded many of the U.S. recessions. Due to this
historical correlation, the yield curve is often seen as an accurate forecast of the turning points of
the business cycle. A recent example is when the U.S. Treasury yield curve inverted in 2000 just
before the U.S. equity markets collapsed. An inverse yield curve predicts lower interest rates in
the future as longer-term bonds are being demanded, sending the yields down

The term yield curve refers to the relationship between the short- and long-term interest rates of
fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-
term interest rates exceed long-term rates. From an economic perspective, an inverted yield
curve is a noteworthy event. Here we explain this rare phenomenon, discuss its impact on
consumers and investors, and tell you how to adjust your portfolio to account for it. Typically,
short-term interest rates are lower than long-term rates, so the yield curve slopes upwards,
reflecting higher yields for longer-term investments. This is referred to as a normal yield curve.
When the spread between short-term and long-term interest rates narrows, the yield curve begins
to flatten. A flat yield curve is often seen during the transition from a normal yield curve to an
inverted one.