The term matrioshka bond refers to an indenture issued in the Russian Federation, in Russian ruble, by a foreign bank or corporation. Matrioshka bonds are issued when a corporation wishes to raise capital from investors located in the Russian Federation.
Foreign corporations that wish to raise funds in the Russian Federation have the option of issuing what are known as matrioshka bonds. These bonds are sold by non-domestic entities, including corporations, financial institutions and governments, and are issued in Russian rubles. This is typically done when the interest rates in Russia are low relative to the foreign corporation’s domestic rates, which lowers their interest expense.
Since the bond is issued in the Russian Federation’s domestic currency, investors located in Russia are also insulated from currency exchange rate risk. Foreign companies will usually issue these securities if they have plans to establish operations in the Russian Federation. These bonds are also attractive to investors wishing to geographically diversify their portfolios.
The name of these bonds is derived from the popular Russian nesting doll, known as the matryoshka doll, which is a set of wooden dolls of decreasing size that are placed inside one another. The term means “little matron.”