Dual-currency bond | Obbligazione a doppia valuta

Dual-currency bond is a type of debt instrument in which it is issued in one currency, but payments of coupons and principal (or only coupon payments, or only principal) occur in another currency. The currency in which the issue is made is called the base currency. In some cases, upon release, the rate at which the principal is paid is fixed. In most cases, the rate is used at the time of the coupon/ denomination payment. Interest rates on dual currency bonds are usually slightly higher than on bonds issued in the same currency with roughly comparable issuance terms due to foreign exchange risk or payments in weaker currencies. The most common issuers of dual-currency bonds are multinational corporations and international development institutions.

There are two main types of dual currency bonds: traditional dual currency bonds and reverse dual currency bonds.
• Traditional dual currency bonds - coupon payments are made in the investor’s currency, and the principal amount is made in the currency of the issuer’s country (base currency).
• Reverse dual currency bonds - coupon payments are made in the base currency, and the principal amount is made in the investor’s currency.

There are also the following subtypes of dual currency bonds:
• Foreign Interest Payment Security (FIPS) is a debt instrument specific to the Swiss capital market. This bond is similar to a reverse bi-currency bond in which coupon payments are made in foreign currency, which is the base currency, and the principal is paid in Swiss francs.
• Adjustable Long-term Putable Security (ALPS) is a bond that has a similar payment structure to FIPS, as well as a mandatory put option and a floating interest rate.
• Yen-linked bonds are bonds denominated in dollars or Swiss francs, whose par value is also indicated in yen (the rate is fixed upon issue). The principal is paid in yen which is converted to the currency of the issue at maturity at the rate fixed at the issue.
• Multiple Currency Clause Bond is the bond by which the investor has the right to select a currency from the pre-approved list, in which the payment of principal and sometimes the coupon payments.
• SDR bonds are bonds denominated in Special Drawing Rights, which are the IMF’s composite currency based on a basket of major currencies. This bond is traded in US dollars only.