The development of the international bond market

Introduction

The 1980s were a period of very rapid expansion for the international bond market. It now constitutes a major avenue for cross-border capital flows, and accounts for some 11% of the total nominal outstandings in the global bond markets.

This paper is intended to provide an overview of the international bond market. The main theme running through the account is the relationship between the international and domestic bond markets, which has both a competitive and a complementary aspect. In the first section the market is examined in its historical context, with particular emphasis on the Euro-bond market, which now accounts for three-quarters of all international bonds. The differences between Euro-bonds, foreign bonds and domestic bonds are described and the reasons for the use of international bonds are reviewed.

The second section of the paper deals with the way in which the Euro-bond market is organised, and looks at the trading conventions employed, the importance of bearer status and the absence of withholding tax, and the functioning of the primary and secondary markets. In the third section borrower and investor behaviour in the market are described, together with some important technical innovations which have influenced the market's development. The prospects for the international bond market in the 1990s are discussed in the concluding part of the paper. It is suggested that the potential for a further diversion of business from the domestic to the international market exists mainly in Europe and in particular in the growth of a large ecu bond market.