Yankee Market

Updated on 2023-08-29T11:56:07.500621Z

What is Yankee market?

In the United States, the Yankee market is a slang used for the stock market. The term is generally used by non-Americans and is derived from the term Yankee/Yank, which is sometimes teasingly used to address an American individual. In some cases, it is also used as a derogatory term while referring to the citizens of the US.

Addressing the US market by the term Yankee market is same as referring to the Japanese market as a Samurai market and referring to the British market by using the slang Bulldog market.

Frequently Asked Questions (FAQs)

How does the Yankee market work?

Yankee market has gained worldwide acceptance as a business slang for the US stock market like Samurai market is used for the Japanese market and Bulldog market is used for the UK market.

It seems like Yankee bonds are issued and traded in the Yankee market; however, it is partially true. Yankee bonds are issued by foreign companies or banks and this financial instrument is priced in the US dollar and traded in the US (Yankee) market.

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What are some crucial components to consider while trading or investing in the Yankee market?

Yankee bonds are issued in tranches, that is, in smaller portions of a larger financial arrangement or debt offerings. The variation in the tranches can be observed on the basis of the maturities, interest rate and risk level.

The value of the financial arrangement in the case of the Yankee bonds can range up to $1 billion. The process of issuing the Yankee bonds is stringent and as a result, the process of issuing the bonds is slow. The issuing process involves assessing the creditworthiness of the issuer by the debt rating agency; therefore, it might take 3 months for the issue approval of Yankee bonds.

What is the reverse Yankee market?

When a US company issues bonds in the Euro market, then it is known as the reverse Yankee market. The participation of American companies in the Euro market has become a common phenomenon.

In 2019, Reuters reported that reverse Yankee market value has reached 380 billion euros.  

Financial Times’ report in 2017 on the reverse Yankee market projected that General Electric sold 8 billion euros worth of bonds and was able to generate an order of 22 billion euros. This deal is interpreted as one of the largest deals in the single currency. The report further highlighted that the reverse Yankee market has gained significant attention and has become popular. Large American companies like Coca-cola and Pfizer are entering into multibillion-euro deals. Coca-cola was able to raise 8.5 billion euro in 2015 by issuing bonds in 5 tranches. In 2015, it was one of the largest deals. These large reverse Yankee deals help in strengthening the future of the reverse Yankee.

A report by Bloomberg indicated that US companies raised 57 billion euros in Europe in 2017 and 42 billion euros in 2016. The companies that were involved in the reverse Yankee market were American Honda, Levi Strauss, AMC Entertainment, Aramark, Netflix, Procter and Gamble, Kellogg, IBM, Apple, AT&T, Nestle, GM financials and Kimberly Clark.

What are Yankee bonds?

Yankee bonds are traded in the Yankee market and are priced in the Yankee market only but are issued by foreign institutions, that is, non-US banks and companies.

The Yankee bonds are issued in tranches. It can be defined as the smaller portion of a larger financial arrangement.

Yankee market is regulated by the USA regulators. They have imposed strict regulations on the issuing of the Yankee bonds, and therefore they are sold slowly. The approval stage takes at least three months.

What are reverse Yankee bonds?

Reverse Yankee bonds are of high grade and issued by US companies and are traded in every currency except for the US currency. These bonds are issued outside the US.

These bonds are regulated under the Securities Act 1933 and later registered under SEC (Securities Exchange Commission). 

What are the advantages of trading in the Yankee market?

• By investing in the Yankee market, the investors can diversify their portfolio as investors of emerging economies are getting exposure to the developed economy, the US.
• There is no currency risk as the Yankee financial products are issued in the US currency and repayment is done in US currency only. Thus, the currency risk is negligible.
• The liquidity of the Yankee market is high as they are traded in the US market.
• The prices of the Yankee bonds are unaffected by the economic and political factors that are prevailing in the US market.
• The issuer of the Yankee bonds gains exposure to the US market.
• Yankee bonds generally have a long tenure, therefore, the issuer has access to the funds for a longer duration.
• The funds are made available at a lower cost when compared to another market.
• Yankee bonds have a higher yield than other investment options available in America.

What are the disadvantages of trading in the Yankee market?

• While investing in Yankee bonds, the risk appetite of the investor should be huge.
• The returns on the Yankee bonds are dependent upon the financial performance of the company. In case the company’s performance is not satisfactory then Yankee bonds gets converted into junk bonds.
• The returns are affected by the currency mismatch. For instance, the bonds are traded in the US currency but the earnings of the issuing company are not in the US dollar but in-home currency. The depreciation in the home currency can lead to huge risks.
• The procedure of getting approval from the regulatory authorities for issuing bonds is complicated, therefore, the whole process is time-consuming.