Eurodollar bonds

Eurodollar bonds are debt securities that pay interest and principal in US dollars but are issued and traded outside the United States. The name comes from Eurodollars — US dollar deposits held in banks outside the US. Despite the "Euro" prefix, neither the deposits nor the bonds must involve Europe; a dollar-denominated bond issued in Tokyo or Singapore qualifies.

Eurodollar bonds are typically sold without SEC registration, but that status is conditional rather than automatic — selling to non-US buyers is not by itself enough. Issuers generally rely on the Regulation S safe harbor, which requires that the sale occur in an offshore transaction and that no directed selling efforts be made in the United States. When those conditions are met, issuers — foreign governments, international corporations, and even US companies borrowing abroad — can raise dollar funding faster and with fewer regulatory costs than through a registered domestic offering. Investors, in turn, typically receive somewhat higher yields to compensate for the reduced regulatory protection.

For the investor, the key risk profile follows the currency. A US-based investor holding a Eurodollar bond faces no foreign currency risk, since all payments arrive in dollars. A non-US investor, by contrast, takes on currency risk because their home currency fluctuates against the dollar. Eurodollar bonds sit within the broader Eurobond category — bonds issued in a currency different from that of the country where they are sold.

The SIE, Series 65, and Series 66 exams cover Eurodollar bonds within corporate debt and bank-related products. Know that they are dollar-denominated bonds issued outside the US, that they can avoid SEC registration when the Regulation S conditions are satisfied, and which investors bear currency risk.