Dual-Currency Bond 

A dual-currency bond is a financial instrument designed to offer exposure to multiple currencies in a single investment. These bonds allow issuers to raise capital in one currency while making interest payments or repaying the principal in another. As a result, they provide unique opportunities for investors and companies dealing in international markets. This guide explains dual-currency bonds in a simple and detailed manner, covering their definition, work, available types, real-world examples, and the risks and benefits involved. 

Dual-Currency Bond 

A dual-currency bond is a financial instrument designed to offer exposure to multiple currencies in a single investment. These bonds allow issuers to raise capital in one currency while making interest payments or repaying the principal in another. As a result, they provide unique opportunities for investors and companies dealing in international markets. This guide explains dual-currency bonds in a simple and detailed manner, covering their definition, work, available types, real-world examples, and the risks and benefits involved. 

What is a Dual-Currency Bond? 

A dual-currency bond is a type of debt security in which the interest payments (also known as coupons) are made in one currency while the principal repayment occurs in another. This arrangement allows issuers to access foreign capital markets while providing investors with returns in their preferred currency. 

For example, a company based in the United States may issue a bond that pays interest in U.S. dollars (US$) but repays the principal in Singapore dollars (SGX). The exchange rate for the principal repayment is often determined at the time of issuance, reducing uncertainty for both parties. 

These bonds are commonly used by multinational corporations, financial institutions, and governments operating in different countries. They serve as a tool for currency diversification and hedging against exchange rate fluctuations. 

Understanding Dual-Currency Bonds 

Why Are Dual-Currency Bonds Issued? 

• For Issuers: Companies or governments issue dual-currency bonds to raise funds in one currency while attracting investors who prefer another. This helps them access a broader investor base and manage currency risks. 

• For Investors: These bonds offer potential for higher returns, significantly if the foreign currency strengthens against the investor’s domestic currency by the time of principal repayment. 

While dual-currency bonds provide opportunities, they also come with exchange rate risk, as currency fluctuations can impact the overall returns. 

Types of Dual-Currency Bonds 

There are two main types of dual-currency bonds: 

1. a) Traditional Dual-Currency Bonds

• Interest Payments: Made in the investor’s domestic currency. 

• Principal Repayment: Paid in the issuer’s domestic currency. 

Example: 

A U.S.-based corporation issues a bond that pays interest in US$ but repays the principal in SGX. This arrangement can attract Singaporean investors looking for returns in their local currency. 

1. b) Reverse Dual-Currency Bonds

• Interest Payments: Made in the issuer’s domestic currency. 

• Principal Repayment: Paid in the investor’s domestic currency. 

Example: 

A company in Singapore issues a bond with interest payments in SGX but repays the principal in US$. This allows them to borrow their home currency while appealing to the U.S.-based investors. 

Each type serves different financial needs and risk preferences for issuers and investors. 

Working of Dual-Currency Bonds 

Dual-currency bonds operate through three main stages: 

1. Issuance

• The issuer determines which currencies will be used—one for interest payments and the other for principal repayment. 

• The exchange rate for the principal repayment is typically fixed at issuance to provide transparency. 

2. Interest Payments

• Investors receive periodic coupon payments in the designated interest currency (e.g., US$). 

• These payments are made at regular intervals, such as annually or semi-annually. 

3. Principal Repayment

• At maturity, the principal is repaid in a different currency (e.g., SGX). 

• If the exchange rate is fixed, investors know exactly how much they will receive. If it is floating, their final return may be impacted by currency fluctuations. 

By structuring the bond this way, issuers can manage their currency exposure while offering investors an investment opportunity that aligns with their financial strategies. 

Examples of Dual-Currency Bonds 

Example 1: Alibaba’s Dual-Currency Bond Issuance (2024) 

In November 2024, Alibaba Group issued a US$5 billion dual-currency bond, consisting of: 

• US$2.65 billion in US$-denominated notes. 

• 17 billion yuan (approximately US$2.35 billion) in offshore yuan-denominated bonds. 

The bond was structured into different maturity periods, with varying interest rates. This was one of the Asia-Pacific region’s most significant dual-currency bond issuances. 

Example 2: U.S. Companies Using Cross-Currency Swaps (2025) 

Several U.S. corporations engaged in cross-currency swaps to convert their US$-denominated debt into euros to benefit from lower interest rates in the eurozone. By doing this, they saved on borrowing costs while managing currency risks effectively. 

These real-world examples show how major corporations strategically use dual-currency bonds to optimise their financial operations. 

Frequently Asked Questions