In today’s world market, Bond Investing has become an important source for companies to product long-term capital. More importantly, emerging market economies have used these bonds. It has been a main part on the global market for the past decade. The Bonds have been particularly attractive because bondholders bear residual risk, which means that shareholders can reduce their risk rising from bilateral monopolies and buy insurance against unforeseen and unforeseeable events in the future. In some cases the unrelated events occurring in emerging markets may spill over to bond markets the in return they affect risk perceptions and prices in the segments they affect.

An example of International Bond Investing is the Ras Laffan Liquified Natural Gas project, which completed a $1.2 billion bond offering which was completed in 1996. The bond offering is still to this date the largest bond offering to take place. In a project such as the Ras Laffan, the judicious use of an output price contingent debt service guaranteed by shareholders can greatly reduce the risk of the project. In global markets, the reception that the bond receives in dependent on whether the project is able to address investors’ concerns in regards to the residual risk. The ability to address residual risk is important due to the fact that well designed projects can benefit from significant financial gains through their lower borrowing costs and longer debt maturities.

Investors in the international bond market rationally anticipate the incidence of the output buyer’s financial and economic conditions on the riskiness of their bond. However, in some conditions there is evidence that investors over-react and there are market inefficiencies. Contractual relationships also impact bondholders so that an investor is unable to abstract from their contracting and enforcement costs.

References:

http://econ.worldbank.org/external/default/main?pagePK=64165259&piPK=64165421&theSitePK=469372&menuPK=64216926&entityID=000094946_01120104231861