Yankee Bonds

Yankee bond definition


A Yankee bond is a dollar-denominated bond issued by foreign financial institutions, corporations, or governments that is intended for public sale in the United States. Typically, Yankee bonds are issued in large blocks of related securities to allow significant amounts of money to be raised by the issuer. One motivating factor for foreign companies, banks, and governments to issue Yankee bonds is the potential for raising larger pools of cash than would be available in their own financial markets. Yankee bonds are subject to strict regulation by the SEC due to the potential for loss inherent in these investments. Companies that wish to issue Yankee bonds must meet strict standards for creditworthiness and undergo a lengthy vetting period that may take several months to complete.

Advantages of Yankee bonds


Yankee bonds offer a number of benefits to investors, most notably the ability to expand into foreign investment markets without running the risks associated with currency fluctuations. The SEC enforces strict requirements for companies issuing Yankee bonds to ensure that they are financially stable and capable of making payment when the bonds reach maturity. As a result, Yankee bonds tend to be lower in risk than certain other types of foreign bond securities; the extensive evaluation period serves not only to vet the corporation, bank, or governmental body’s past financial transactions and stability, but also to provide a time period during which the current condition of the institution or government can be observed and monitored to identify emerging financial difficulties.

Disadvantages of Yankee bonds


One major drawback of Yankee bond investments is the form in which they are usually offered on the public stock markets; Yankee bonds are typically incorporated into tranches, high-value groupings of like investments that can add up to over $1 billion in total worth. As a result, Yankee bond investments are often priced out of the reach of smaller investment firms or individuals. Additionally, Yankee bonds should only be purchased by investors with a clear understanding of the international market conditions, especially those prevailing in the country where the Yankee bond issuer is located. Yankee bonds present an outstanding opportunity for knowledgeable large investment firms that can assess the risks and rewards of these investments wisely.
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