Dragon Bond: A Foreign Bond Issued in the Asian Bond Markets

Types

Dragon Bonds can be categorized based on currency denomination, issuer profile, and market segment:

• Currency Denomination:

  • USD-denominated
  • Local currency-denominated

• Issuer Profile:

  • Sovereign entities
  • Corporate entities
  • Financial institutions

• Market Segment:

  • Investment-grade bonds
  • High-yield bonds

Detailed Explanation

Dragon Bonds are issued by foreign entities but are sold within Asian markets, catering to Asian investors. These bonds allow issuers to diversify their funding sources and investors to gain exposure to global entities without currency exchange issues.

Pricing a Dragon Bond

The price of a Dragon Bond can be estimated using the present value of its cash flows:

Where:

• \( P \) = Price of the bond
• \( C_t \) = Cash flow at time \( t \)
• \( r \) = Discount rate
• \( T \) = Time period

Importance

Dragon Bonds hold significant importance due to their role in providing diverse investment opportunities and funding avenues. They enable foreign issuers to leverage Asia’s growing investor base while allowing investors to access international bonds without currency risk.

Related Terms

• Samurai Bond: A yen-denominated bond issued in Japan by a non-Japanese entity.
• Bulldog Bond: A pound sterling-denominated bond issued in the UK by a foreign entity.
• Yankee Bond: A U.S. dollar-denominated bond issued in the U.S. by a foreign entity.

FAQs

• What is a Dragon Bond?

  • A foreign bond issued in the Asian bond markets.

• Why are they called Dragon Bonds?

  • The term “Dragon” symbolizes Asia’s dynamic and powerful economies.

• Who can issue Dragon Bonds?

  • Any non-Asian entity, including sovereign, corporate, or financial institutions.