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Types of Bonds

Non-Dollar Programs and Structures

Programmatic and MTN platform–issued debt securities with either fixed or floating-rate interest may incorporate features that allow investors to hedge foreign currency risk or to participate in higher overseas interest rates. Investors may also use these structures to take a position on an expected movement in foreign exchange or interest rates. For example, an inverse floater tied to an overseas interest rate would allow the investor to benefit from falling interest rates in that particular market.

These structures may be denominated in a currency other than U.S. dollars, or they may have their interest rate payment linked to a non-dollar interest rate or to an exchange rate between two or more currencies. Interest can be payable in a foreign currency or in U.S. dollars even though the rate is based on a foreign rate.

Generally, structures that are denominated in U.S. dollars and pay in U.S. dollars do not expose the investor to currency risk, although some of the other variations will be denominated and pay interest in a foreign currency.

Maturities generally range from two to 10 years and can be accompanied by an issuance calendar and a highly liquid secondary market. The special risk in these instruments is related to the possibility of changing relationships in foreign exchange rates and/or a marked change in the value of the dollar’s exchange rate with a particular foreign currency.

If the spread between the U.S. interest rate and the relevant foreign interest rate changes in an unexpected way, investors may earn a lower or higher relative rate.


All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.