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Imagine a bond from a creditworthy country that pays you each year for 100 years. The only catch is, it only pays 1.2%. Would you buy it? In Bloomberg, Marcus Ashworth calls the idea of the 100 year bond at 1.2% “madness.” He writes:
If you needed any more proof that the world of fixed income has gone mad in the rabid hunt for yield, look no further than the Republic of Austria. If you liked its 100-year debt issued two years ago with a 2.1% return, how about settling for the same maturity for 1.2% now? Yes, you read that right: A 100-year bond yielding about 1.2%.
Austria is in the process of bringing a more run-of-the-mill syndicated five-year issue, although that will probably yield less than the European Central Bank’s minus 40 basis point deposit rate. So Vienna thought it would take the opportunity to test investor demand for a repeat of its 2017 100-year transaction, which truly broke the mold for euro area debt. Belgium and Ireland have plowed the 100-year path too, but only in private format.
If you wanted to buy any of those 2.1% 2117 Austria bonds right now, you’d have to pay 60% more than their issue price; they’ve been a great success. They currently yield about 1.12%, so that’s where you’d expect any new 2119 offer would be pitched – if it comes. A new-issue premium would probably take it up to close to 1.2%.
Read more here.
Jeremy Jones, CFA
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