Eurobond long-term investment instrument
Eurobonds are generally long-term debt instruments that governments or companies offer for sale in international markets in foreign currencies in order to raise funds outside their own countries.
The Treasury of the Republic of Turkey usually issues Eurobonds denominated in USD
or EURO in international markets.
They can be issued in currencies such as US Dollars, Euros, Japanese Yen, Swiss Francs, etc.
The maturity is generally between 5-30 years.
Since they are long-term bonds, they are issued with coupons. Generally, coupons have fixed interest rates. They provide a regular cash flow to the investor during coupon payment periods. Principal and coupon payments are made in the currency in which they are issued.
USD bonds pay coupons every 6 months and EURO bonds pay coupons once a year. Interest on coupons is expressed as annual simple interest.
They can be liquidated within the framework of market conditions without waiting for the maturity date.
Who is it suitable for?
It is an instrument for individuals and organizations who prefer to invest their savings in foreign currency denominated investment instruments and who intend to invest in the long term (generally 5-30 years).
Eurobond prices are affected by the financial and economic performance of the issuing country or organization as well as developments in international financial markets.
Advantages of Investing in Eurobonds
- Assurance from the Undersecretariat of Treasury
- Periodic cash flow with coupon interest
- Alternative maturity options
- High liquidity
- Buy/sell opportunities in the international market
- Tax advantage (interest income and trading gains are not subject to withholding tax and are subject to declaration)
What are the Price and Yield Concepts in Eurobonds?
- Clean Price: Eurobonds are traded at clean prices in international markets.
- Dirty Price: During the settlement of the realized trades, the security price is calculated by adding the accumulated coupon interest and the price including the accumulated interest is called "Dirty Price".
- Accumulated Interest: The interest accrued on a Eurobond from the date of issue or last coupon payment until the date of purchase and sale is called accumulated interest.
- Accumulated Interest = A / E * % CPN / M
A: Number of days from the last coupon payment date to the value date
E: Number of days in the coupon payment period
CPN Coupon interest rate
M: Number of coupon payments in a year
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