Foreign currency bonds

Bonds denominated in foreign currencies can be traded continuously on the Stuttgart Exchange. But there are a few things investors should bear in mind.

Nominal amount

With foreign currency bonds, the nominal amount always relates to the foreign currency. So, for instance, at an assumed euro exchange rate of 1.30, an order placed for a minimum tradeable unit of 1,000 in US dollars has an equivalent value of € 769 (1000 / 1.3 = € 769.23).

Coupon and interest payment

The coupon determines the level of the interest rate. This is also paid in the foreign currency (if not specified otherwise). If the coupon remains at a constant level, the amount of the interest payment in the foreign currency is known and is always constant.

However, the equivalent in euro, and thus the amount credited to the investor, fluctuates depending on the exchange rate at the time of the interest payment. Investors may make additional gains or losses from changes in the exchange rate depending on whether the exchange rate moves in favour of or against the investor.

Foreign exchange settlement for foreign currency bonds

All foreign currency bonds are settled in euro. Rules for the conversion of bonds denominated in foreign currencies to euro can be found under Important trading information.

Risks from trading in foreign currency bonds

Apart from the credit risk, investors should bear in mind the additional risks that may arise with foreign currency bonds.

The main risk is exchange rate risk. Investors buying a bond in a foreign currency can benefit from additional gains from favourable currency movements, but equally they stand to make additional losses if the value of the foreign currency falls against the euro or is devalued.

Credit ratings

The rating provided by Boerse Stuttgart for many bonds gives information on the creditworthiness of the bond issuer. These credit ratings originate from Standard and Poor´s (S&P).

With bonds from issuers in emerging markets, investors should also note that higher interest rates generally also reflect the higher economic and political risks.

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