Austria Offers Europe's First Benchmark-Sized Century Bonds

(Bloomberg) -- Austria is poised to become the first euro member to issue a benchmark-sized century bond, allowing it to lock in some of the lowest funding costs in history for the next 100 years.

The country is selling 3.5 billion euros ($4.2 billion) of the debt maturing in 2117, the biggest ever sale of 100-year bonds, at 50 basis points over its existing 30-year benchmark bond versus an initial target of about 60. This implies a yield of around 2.10 percent on the notes, according to exchange quotes at 4:09pm London.

Near-zero interest rates in Europe and the U.S. have forced many investors running funds that need to cover pension or insurance liabilities into riskier, or longer-dated debt in search of better yields. That’s made it easier and cheaper for lower-rated borrowers, such as emerging market governments to raise money and for high quality issuers to sell debt with longer maturities.

“From an issuer perspective it’s fantastic as it enables them to lock in ultra low yields for a very long time," said Uwe Maderer, portfolio manager at Deka Investment GmbH in Frankfurt. “This is really affecting global investing in bonds, not only in the eurozone," he said.

The sale is Austria’s longest-dated since raising 2 billion euros of 70-year securities at a spread of 53 basis points above benchmark government notes in October 2016. Those bonds are currently quoted at about 32 basis points above the benchmark rate, according to data compiled by Bloomberg, but have been subject to big price swings as long-duration bonds typically experience greater volatility.

Investor orders for the 100-year securities topped 11 billion euros during the book-building process, according to an email from Austrian treasury spokesman Christian Schreckeis. Austria is also selling 4 billion euros of five-year notes that have received more than 11.5 billion euros of bids, Schreckeis said.

Argentina sold $2.75 billion in century bonds in June, just 14 months after returning to international capital markets for the first time since a 2001 economic collapse resulting in a $95 billion default and years of litigation with Wall Street hedge funds.

Euro members Ireland and Belgium have also sold century bonds but those were below benchmark size, according to data compiled by Bloomberg.

Bank of America Corp, Erste Group Bank AG, Goldman Sachs Group Inc., NatWest Markets and Societe Generale SA are arranging the sale.

--With assistance from Simon Ballard

To contact the reporters on this story: Lyubov Pronina in Brussels at lpronina@bloomberg.net, Boris Groendahl in Vienna at bgroendahl@bloomberg.net, Paul Cohen in London at pcohen10@bloomberg.net.

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Chris Vellacott