What are Brady Bonds?
How Do Brady Bonds Work?
Named for former U.S. Treasury Secretary Nicholas Brady, Brady bonds were introduced in the late 1980s as part of Brady's initiative to reduce the high debt obligations of emerging economies once they began defaulting on bonds issued by their respective governments.
Each Brady bond is denominated in U.S. Dollars and collateralized by an equal amount of 30-year zero-coupon Treasury bonds. Maturities range from 10 to 30 years with payments at either fixed or adjustable interest rates.
Why Do Brady Bonds Matter?
Brady bonds create an attractive market for debt issued by emerging economies because they are backed by the U.S. Treasury, and investors can be assured of consistent, timely payments of interest and principal.