Euro-denominated corporate market

Since the establishment of European Monetary Union on 1 January 1999, the word Eurobond has taken on an additional meaning— that of a euro-denominated security. In this chapter we generally use Eurobond both for issues that are in Eurobond format, and that are euro-denominated. There are, of course, markets for noneuro denominated corporate issues, chiefly in dollars and sterling. Noncorporate borrowers, such as sovereigns, supranationals, and agencies, are also big issuers of Eurobonds in all the major currencies. 

This same factor can also be used to compute spread risk in markets where there is not enough data to build a detailed credit block. It can also be used in markets where more detailed credit factors are available, but when there is not enough information to expose a bond to the appropriate credit factor. As we will see in what follows, this will be the case when a euro- or sterling-denominated corporate bond is not rated. Based on the observation that bonds with larger spreads are on average more risky, Barra s model assumes the following exposure to the swap factor ... 

At the time of this writing, corporate bonds denominated in currencies others than euro and sterling are only exposed to the local interest factors and if it exists, the swap factor. This swap factor is roughly equivalent to a financial AA spread factor, as the bulk of organizations that engage in swaps are AA-rated financial institutions. The swap model is coarser than the two local credit models discussed in the next section, but it performs adequately because spread changes are highly correlated within markets. 

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