Yankees

In finance, Yankees refer to bonds issued in the United States by foreign entities, denominated in U.S. dollars. These bonds are also known as Yankee bonds.
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Updated: May 28, 2024

3 key takeaways

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  • Yankee bonds are U.S. dollar-denominated bonds issued by foreign entities in the American market.
  • They provide foreign issuers access to the large and liquid U.S. capital market.
  • Yankee bonds help diversify investors’ portfolios with foreign credit exposure while benefiting from U.S. regulatory protections.

What are Yankee bonds?

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Yankee bonds are debt securities issued by foreign governments, corporations, or financial institutions in the United States and denominated in U.S. dollars. These bonds are subject to U.S. regulations and must be registered with the Securities and Exchange Commission (SEC).

By issuing Yankee bonds, foreign entities can raise capital from American investors while providing these investors with the opportunity to gain exposure to international credit markets without dealing with foreign currency risk.

How do Yankee bonds work?

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Yankee bonds work similarly to other bonds, with a few key distinctions related to their issuance by foreign entities:

  • Issuance: Foreign entities issue Yankee bonds in the U.S. market. These entities could be governments, corporations, or financial institutions looking to raise capital in dollars.
  • Denomination: Yankee bonds are denominated in U.S. dollars, eliminating currency risk for American investors who otherwise might have to deal with exchange rate fluctuations.
  • Regulation: These bonds must comply with U.S. securities regulations, including registration with the SEC. This regulatory oversight provides a level of protection for investors.
  • Interest payments: The issuing entity makes periodic interest payments (coupons) to bondholders in U.S. dollars, and the principal amount is repaid at maturity.

Example

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Suppose a European corporation wants to raise $500 million for expansion and decides to issue Yankee bonds. The corporation issues the bonds in the U.S. market, denominated in dollars, and registers the issuance with the SEC. American investors purchase these bonds, receiving regular interest payments in dollars, and the corporation uses the proceeds for its expansion.

Advantages and disadvantages of Yankee bonds

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Advantages

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  • Access to U.S. capital markets: Foreign issuers gain access to the large, liquid U.S. capital market, which can offer lower borrowing costs and a broader investor base.
  • Currency risk mitigation: For U.S. investors, Yankee bonds provide exposure to foreign credit without the added risk of currency fluctuations, as all transactions are in U.S. dollars.
  • Diversification: Investors can diversify their portfolios by adding foreign credit exposure through Yankee bonds, potentially enhancing returns and reducing risk.
  • Regulatory protection: Being subject to U.S. regulations, Yankee bonds offer a level of investor protection that might not be available in other jurisdictions.

Disadvantages

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  • Regulatory compliance: Foreign issuers must comply with U.S. securities regulations, which can be costly and time-consuming.
  • Political and economic risk: Although denominated in U.S. dollars, Yankee bonds still expose investors to the political and economic risks of the issuing country.
  • Interest rate risk: Like all bonds, Yankee bonds are subject to interest rate risk. Rising interest rates can lead to falling bond prices.

Applications of Yankee bonds

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Yankee bonds serve various purposes for both issuers and investors:

  • Capital raising: Foreign entities use Yankee bonds to raise capital for projects, expansion, or refinancing existing debt.
  • Portfolio diversification: Investors use Yankee bonds to diversify their fixed-income portfolios with international exposure without currency risk.
  • Strategic investment: Corporations and financial institutions might invest in Yankee bonds to take advantage of favorable interest rates or credit opportunities in the U.S. market.

Understanding Yankee bonds is important for both issuers looking to tap into the U.S. capital market and investors seeking diversification with foreign debt exposure. For further exploration, related topics include international bonds, Eurobonds, foreign exchange risk, and global capital markets.

These subjects provide deeper insights into the dynamics and opportunities of international debt securities.



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Arti
AI Financial Assistant
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.