The term Eurodollar bond refers to any security issued in United States dollars by a bank or corporation located outside of the United States. Eurodollar bonds are issued when a corporation wishes to raise capital from investors located in foreign countries.
When a corporation or government wishes to raise funds from investors located in another country, they have the option of issuing what are known as Eurodollar bonds. These securities are issued in United States dollars (USD) by an institution that is not located in the issuer’s country. For example, a German bank holding bonds issued in USD by a French company would be holding a Eurodollar bond.
There is a misconception that Eurodollar bonds are issued in euro. The term is actually derived from the location (London, England) where the concept was first developed. These bonds are traded, issued, and held throughout the world, not just in Europe.
The cost of issuing Eurodollar bonds is lower than a dollar-denominated bond issued by a foreign corporation in the United States. Since they are issued in a non-U.S. country, they do not have to be registered with the Securities and Exchange Commission (SEC). This lowers the overall cost to place these securities in the market, which allows these bonds to carry slightly lower interest rates too.